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Advance Pricing Agreements (APAs)

Topics Covered:

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Advance Pricing Agreements (APAs)

 

What to study?

For Prelims and Mains: APAs- meaning, features and significance.

 

Context: The Central Board of Direct Taxes (CBDT) has entered into 26 Advance Pricing Agreements (APAs) in the first 5 months of the financial year (April to August, 2019).

  • Out of these 26 APAs, 1 is a BAPA entered into with the United Kingdom and the remaining 25 are Unilateral Advance Pricing Agreements (UAPAs).

 

What are APAs?

An APA is an agreement between a taxpayer and the tax authority determining the Transfer Pricing methodology for pricing the tax payer’s international transactions for future years.

An APA provides certainty with respect to the tax outcome of the tax payer’s international transactions.

 

An APA can be one of the three types – unilateral, bilateral and multilateral:

  1. Unilateral APA is an APA that involves only the taxpayer and the tax authority of the country where the taxpayer is located.
  2. Bilateral APA (BAPA) is an APA that involves the tax payer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located and the foreign tax authority.
  3. Multilateral APA (MAPA) is an APA that involves the taxpayer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the taxpayer is located and the tax authorities of AEs.

 

Significance:

The progress of the APA scheme strengthens the government’s resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

 

Sources: pib.