Indian tax authority signs APAs at a quick pace but backlog grows, report shows

by Julie Martin

Indian tax officials signed a record number of advance pricing agreements (APAs) in fiscal year 2016–17; nonetheless, India’s backlog of unresolved APA cases increased during the period.

Following the lead of many other nations, India has begun preparing annual reports detailing its APA program. Through its APA program, the tax authority seeks to reach advance agreement with taxpayers on transfer pricing approaches to be used by the taxpayer with respect to cross-boarder business transactions between the taxpayer and related group members.

India’s first APA report, released today, provides data on its APA program’s performance since its inception in 2012.

The report reveals that India signed 88 APAs during fiscal 2016–17, an increase from the 2015–16 total of 55. Only 9 APAs were signed during the two fiscal periods prior to that, the report said.

This brings total APAs signed since the program’s inception to 152, according to the report.

The report also said that 99 new APA applications were filed in 2016–17, though. As such, the number of unresolved APAs increased for the period. A total of 644 unresolved APAs now remain in inventory, a fairly large backlog for such a new program.

The backlog was caused in part by the large number applications filed in the earlier years of the program coupled with the low output those years. 438 applications were filed in fiscal years 2013-14 and 2014–15, alone.

The tax agency appears to be striving to address the problem of pending APAs, though. The APA program “is poised to move ahead quicker than it has done so far,” the report maintains. The government said it took an average of only 29 months for India to complete the 141 unilateral APAs signed.

Of the 152 agreements signed through India’s APA program, 11 were bilateral APAs, the tax agency reported. Six bilateral APAs involved the UK and 5 involved Japan, the report states.

India’s first bilateral APA with the US was resolved in 2016-17, but could not be concluded by March 31, the close of the fiscal year, the report said.

The government reported that 78 APA agreements signed contained roll back provisions.

In India, the deal reached between a taxpayer and the tax authority in an APA can be rolled back for four years prior to the first year of the APA, providing taxpayers with certainty regarding transfer pricing matters for up to 9 years.

The government  said that the most common transfer pricing method adopted in APAs, by far, has been the transactional net margin method.

About half the agreements involved the IT and banking and finance industries and the most common issues involved provision of software development services and provision of IT enabled services, the report said.

Also, the tax agency said that of the 151 APAs signed to date, 93 involved a US associated enterprise of the Indian applicant, 55 involved a UK enterprise, 44 involved a Singapore enterprise, and 33 involved a Chinese enterprise.

Julie Martin

Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Martin has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie Martin


Don't miss the latest tax and transfer pricing news! Sign up for our FREE newsletter