Advance pricing agreement to be in place

MUMBAI: Companies that undertake cross-border transactions are relieved that an advance pricing agreement ( APA) mechanism will be put in place soon. It has been a long-pending demand of companies that are forced to spend time and money to fight the transfer pricing orders of tax authorities.

The APA system, which is in place in most advanced countries, involves an agreement between the tax authorities and the company on the rate of tax applicable on a transaction. The agreement will be binding for five years for both parties. Any company planning a transaction can apply before the tax authorities for an APA.

"This is a significant legislation in view of the fact that 60 % of the global litigation is related to transfer pricing orders," said Sanjay Sanghvi, tax lawyer at Khaitan & Co.