India hits the 200 APA milestone, signs first pact on advertising, promotional expense

By Ajit Jain, Mumbai

India’s Central Board of Direct Taxes (CBDT) on 1 March announced that it entered into seven more unilateral advance pricing agreements (APAs) with Indian taxpayers in February, including its first agreement on the highly litigated transfer pricing issue of advertisement marketing and promotional (AMP) expenses.

With the signing of these 7 APAs, India smashed a double ton, namely, it has crossed the threshold of signing 200 APAs. The total number of APAs now signed by India is 203, which includes 185 unilateral APAs and 18 bilateral APAs.

This current financial year, the CBDT has so far entered into 51 APAs, which includes 44 unilateral APAs and 7 bilateral APAs.

The Indian APA program was introduced in 2012 and APA rollback provisions were introduced in 2014. During the first 4 years of the APA program, ending on 31 March 2017, India had signed 152 such agreements, including 141 unilateral APAs and 11 bilateral APAs.

The AMP expenses incurred by the Indian entity were assessed to tax by India’s transfer pricing officers under the theory that the expenses should be considered as a brand building for the associated enterprise and should be reimbursed with a mark-up.

The additional tax is assessed following the concept of bright line. Litigation over AMP expenses has reached the highest Indian court. The signing of the first agreement on AMP is a step in a positive direction towards resolving this issue.

India’s APA signing is accelerating, an indication of the government’s resolve to foster a non-adversarial tax regime. The program has contributed immensely to improving the ‘ease of doing business’ in India and is an indication of the government’s “developmental” agenda.

The number of new APA application filed in the current financial year is not yet known. March is the last month of the financial year and is the month when most new applications are filed by taxpayers.

–Siddhesh Chaugule, Assistant Manager, also contributed to this article.