Government to soon notify Advance Pricing Agreement to reduce transfer pricing disputes

NEW DELHI: In order to contain disputes relating to transfer pricing, the government will soon implement the Advance Pricing Agreement (APA) mechanism which would allow companies seek guidance on pricing of goods and services in advance.

"The APA is to be implemented from July 1. Notification should come in 2-3 days," Finance Secretary R S Gujral told reporters here.

About Rs 60,000 crore is locked up in litigation related to transfer pricing -- a mechanism used by multinational companies to shift profits to low tax jurisdiction.

Finance Minister Pranab Mukherjee in its budget for 2012-13 had proposed to come out with APA with a view to reducing disputes in international taxation.

The scheme, a Finance Ministry official said, would provide an option to companies to enter into unilateral, bilateral or multilateral APA on payment of fee.

An APA is a contract, usually for multiple years, between a taxpayer and tax authority specifying the pricing method that the taxpayer will apply for its transactions. The APA is considered as an effective tool to ensure certainty on transfer pricing matters.

According to experts several foreign companies and also large Indian firms such as Tatas, Birla Group and Bharti will benefit from the APA.