The Central Board of Direct Taxes (CBDT) has entered into 11 more unilateral Advance Pricing Agreements (APAs) with Indian subsidiaries of foreign companies operating in various segments of the economy.
Of the total eleven APAs, seven were having rollback provisions in them with maximum period of 9 years, while the other four are extension agreements for future five years i.e. till 2020.
With this, CBDT so far has entered into 31 APAs (30 unilateral and one bilateral) and is now aiming to finalise another 30 to 40 APAs in order to provide stability and confidence among the foreign enterprises operating in India.
What is Advance Pricing Agreements (APAs) APA usually is signed between a taxpayer and the central tax authority (in case of India it is CBDT) for multiple years on an appropriating transfer pricing methodology. The APA Programme was introduced in 2012 as per the provisions of the Income Tax (IT) Act, 1961. It helps in determining the price and ensuing taxes on intra-group overseas transactions.
Comment:
In the past, several Multi-National Companies (MNCs) operating in India were often accused of misusing the transfer pricing system. MNCs like Vodafone, Shell, WNS and Nokia were mainly involved in this issue by misusing the system for transferring profits to their subsidiaries in countries having low tax rates.
By signing APAs, Government is seeking to foster an environment of co-operation in matters of taxation through predictability of laws and reducing litigation cases in future. It is considered as a major push towards providing certainty to foreign investors in the arena of transfer pricing.
Further,
The Finance Ministry has said that it has so far entered into 31 Advance Pricing Agreements with Indian subsidiaries of foreign companies operating in various segments.
Transfer pricing – transaction prices between separate entities of a large company – has generated much heat in connection with investments by large MNCs like Vodafone, Shell, WNS and Nokia.
MNCs are often accused of misusing the system to transfer profits to their subsidiaries in countries that have low tax rates.
The law requires that goods and services be sold to subsidiaries by parent companies at arm’s length price, at which goods are traded between unconnected companies.