Prabhakar KS, Founder and CEO, Shree Tax Chambers, Bangalore
India entered into 62 advance pricing agreements (APAs) in fiscal year 2021-2022, according to a March 31 statement from India’s Central Board of Direct Taxes (CBDT). This number includes 13 bilateral APAs between India and its tax treaty partners and 49 unilateral APAs. The total number of APAs is 421 since the Indian APA program began, the statement said.
India has one of the most successful alternative tax dispute resolution mechanisms anywhere.
Its Advance Pricing Agreement Programme is set to complete its decade-long journey this June.
An APA is an agreement between the taxpayer and the CBDT, a regulatory body of direct taxes in India, which works with taxpayers to determine the best method to select the arm’s length price in relation to an international transaction entered into with its associated enterprises, well in advance.
As per its income tax law, the CBDT may enter into an APA with any person, resident or non-resident, who proposes to begin a new international transaction with its associate enterprise(s) and any person, resident or non-resident, who is having a continuing international transaction with its associate enterprise(s).
India provides three forms of advance arrangements: unilateral APAs between the tax authority and the taxpayer; bilateral APAs between the tax authority and the taxpayer based on an agreement between the Indian competent authority and the competent authority of another jurisdiction; and multilateral APAs between the tax authority, the taxpayer, the Indian competent authority, and competent authorities of other jurisdictions. The taxpayer has the option to roll back the APA for four proceeding years, as a result of which, a total of nine years of tax certainty is provided.
Since its emergence as a successful alternative resolution, numerous sectors have joined the Indian APA programme, including companies in the information technology, banking, finance, industrial, pharmaceutical, engineering, and health care sectors, among others.
These APAs have covered various international transactions, such as IT-enabled services, corporate guarantees, intragroup payments, royalty payments and receipts, management services, business support services, and the like.
The top countries that entered into APAs with India are the U.S., the UK, Singapore, China, the Netherlands, Japan, Australia, Hong Kong, Canada, and Germany.
It is reported that India has taken on an average of 45.22 months to conclude unilateral APAs. Similarly, it has taken an average of 51.82 months to conclude bilateral APAs. To clear all backlogs (about 1,150 as of December 20, 2019), it is suggested to establish more APA offices with highly qualified teams in various cities such as Chennai, Hyderabad, and Calcutta.
It is believed that India’s APA programme will go from strength to strength and continue to provide much-needed clarity on international tax laws for the Indian government as well as for taxpayers.
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Prabhakar KS is the Founder and CEO of Shree Tax Chambers in Bangalore.
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