India signs first bilateral advance pricing agreement

NEW DELHI: India signed its first bilateral advance pricing agreement (APA) on Friday marking an important step in the country’s attempts to provide a predictable transfer pricing regime, an issue that has fetched India tax authorities bad name world over.

The APA signed by the Central Board of Direct Taxes with a Japanese company is valid for five years. “This is India’s first bilateral APA. The APA is for a period of five years,” the finance ministry said in a statement.

“The APA scheme has been introduced to bring about certainty and uniformity in transfer pricing matters of multinational companies and reducing litigation,” the statement said adding that it will improve investment climate in the country. Tax experts welcomed the government’s initiative in addressing transfer pricing concerns.

“This shows that policymakers and the concerned authorities in India are inclined to make APA a success and thereby provide certainty to taxpayers, particularly in respect of transfer pricing,” said SP Singh, senior director, Deloitte Haskins & Sells LLP. The CBDT said the APA has been finalised in a period of about one-and-a-half years, which is shorter than time taken internationally.

An APA is essentially a negotiated deal between a taxpayer and the tax authorities that sets out beforehand the method of determining the transfer pricing for transactions between a subsidiary and its foreign parent. Transfer pricing refers to the pricing of assets, tangible and intangible, services, and funds that are transferred within an organisation in a cross-border transaction.