Government establishes APA regime for transfer pricing news
The Central Board of Direct Taxes (CBDT) has announced guidelines for advance pricing arrangements (APAs), which would help reduce disputes on transfer pricing between the tax authorities and multinational corporations.
MNCs can now ascertain in advance the potential tax liabilities relating to transactions with their Indian units, helping reduce disputes over transfer pricing. The APA agreement will enable the tax department and the MNC from agreeing in advance on the method for determining transfer pricing for transactions between the parent firm and its Indian unit.
The government had in the budget earlier this year announced the setting up of such a mechanism to avoid disputes with transnational corporations. The APA directorate has now been set up, enabling MNCs to enter into agreements with tax authorities.
APA rules to help reduce transfer pricing disputes
New Delhi, Aug. 31: In a move to prevent transfer pricing disputes, the Government on Friday announced operational guidelines for Indian advance pricing agreements (APA).
The rules, seen as an important milestone in the transfer pricing regime, will guide companies on pricing cross-border movement of goods and services in advance for the purpose of calculating taxes, within group entities.
The concept of APA was introduced in the Budget 2012-13, which incorporated the basic framework in the law on the lines contained in the draft Direct Taxes Code.
The Central Board of Direct Taxes was empowered to lay down the detailed framework for India’s APA programme.
This has now been done and the Indian APA programme allows for bilateral and multilateral arrangements. Unilateral APAs will be decided by the office of the Director-General of International Tax.
An APA is an agreement between a taxpayer and the tax authority concerning the transfer pricing method and the rate applicable to the taxpayers’ inter-company transactions, and normally covers multiple years.
Once an APA is in place, the tax authority cannot make arbitrary adjustments to the transfer price, as long as it is valid.
The rules prescribe minimum filing fee of Rs 10 lakh per application for all international transactions up to Rs 100 crore.
For international transactions between Rs 100 crore and Rs 200 crore, the fee is Rs 15 lakh. For transactions above Rs 200 crore, the filing fee has been pegged at Rs 20 lakh.
According to APA rules, every company which is proposing to enter into such an agreement has to necessarily attend a pre-filing consultation with the income tax authorities.
This pre-filing consultation can also be on a no-name basis if the company is not willing to share all the details at this stage.
Once the company enters an APA, it is absolved of future litigation and lot of compliance procedures.
