CBDT signs bilateral APAs with two UK-based firms to reduce transfer-pricing disputes

NEW DELHI: The Central Board of Direct taxes ( CBDT) has signed bilateral advance pricing agreements ( APAs) with two UK-based firms, a move that will help reduce transfer-pricing disputes concerning intragroup transactions.

“The two bilateral APAs were signed with two Indian group entities of a UK-based multinational company,” the finance ministry said in a release on Monday.

“The APAs cover the period 2013-14 to 2017-18 and also have a rollback provision for two years (2011-12 and 2012-13).” With the signing of the bilateral APAs on January 29, the two Indian companies have been provided with tax certainty for 12 years each (five under the Mutual Agreement Procedure and seven under the APAs).

“This is a significant step towards providing a stable and predictable tax regime,” the statement added. This takes the total number of bilateral APAs signed by the apex direct taxes body to three.

The first bilateral APA was signed with Japan in December 2014. An APA, usually for multiple years, is signed between a taxpayer and the tax authority (CBDT, in India) on an appropriate transfer-pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.

“The APAs have been entered into soon after the competent authorities of India and UK finalised the terms of the bilateral arrangement under the Mutual Agreement Procedure (MAP) process contained in the India-UK DTAA (double taxation avoidance agreement),” it added. Transfer-pricing disputes on the same transaction were recently resolved under MAP for each of these two companies for the years 2006-07 to 2010-11.

“The two APAs are also significant because they address the issues of payment of management, service charges and payment of royalty. These transactions generally face prolonged and multi-layered transfer pricing disputes,” it added. CBDT has in all signed 41 APAs, out of which 38 are unilateral and three are bilateral.