The Central Board of Direct Taxes (CBDT) has achieved a record milestone by signing 174 Advance Pricing Agreements (APAs) in FY 2024-25, surpassing last year's all-time high of 125. The development reflects the government's continued push to promote tax certainty, reduce disputes, and enhance ease of doing business for multinational enterprises operating in India.
An APA is a formal agreement between a taxpayer and tax authorities that establishes the methodology for determining transfer pricing - the price charged in transactions between related entities of a multinational group. The agreement, typically valid for five years, helps prevent disputes by defining how cross-border related party transactions will be taxed.
In its statement, the CBDT highlighted that FY25 witnessed the highest-ever number of Bilateral Advance Pricing Agreements (BAPAs) signed in a single year - a total of 65 BAPAs, including one Multilateral APA (MAPA). These agreements were executed with treaty partners such as Australia, Japan, Singapore, South Korea, the Netherlands, the UK and the US.
"The figure of 174 APAs is among the highest reported globally by any country in a tax year," the CBDT noted. "This demonstrates India's growing credibility and commitment to transparent and predictable tax administration."
Experts have lauded this achievement, saying it underscores India's consistent efforts to reduce tax litigation and make cross-border compliance smoother. "The steady rise in bilateral APAs reflects the government's intent to promote international cooperation and provide certainty to investors," said a leading tax consultant.
Notably, India also signed its first Multilateral APA (MAPA) in FY25 - a comprehensive arrangement covering taxpayers with operations in multiple jurisdictions. Experts believe this marks the beginning of a more advanced stage in India's APA program.
The CBDT further observed that although the total BAPA figures still trail those of countries like the US and Japan, India's progress has been significant - up from 39 BAPAs in FY 2023-24 to 65 in FY25, signaling stronger engagement with global partners.
FAQs
What is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, and intangible assets exchanged between related entities within a multinational group. It ensures transactions are valued as if they were conducted between independent parties at arm's length, preventing profit shifting and ensuring fair taxation.
How Do Advance Pricing Agreements Work?
An APA determines, in advance, the appropriate Transfer Pricing Methodology (TPM) for related-party transactions. It helps both taxpayers and authorities agree on how cross-border transactions will be priced, thereby avoiding future disputes.
What Are the Types of APAs?
- Unilateral APA: Between the CBDT and a single taxpayer.
- Bilateral APA: Between tax authorities of two countries and the taxpayer.
- Multilateral APA: Involving multiple tax authorities and the taxpayer.
Why Are APAs Important?
APAs bring predictability, reduce litigation, and build investor confidence by clarifying how profits from international transactions will be taxed in India.
CAclubindia
