29 Dec
ADVANCE PRICING AGREEMENT (APA)
An APA, or Advance Pricing Agreement, is a pact between a taxpayer and a tax authority that establishes the transfer pricing methodology for the international transactions of the taxpayer in upcoming years. The chosen methodology is intended to be implemented over a specific timeframe, contingent upon the satisfaction of predefined terms and conditions referred to as critical assumptions.
Benefits of Advance Pricing Agreement:
The benefits Advance Pricing Agreement is explained in detail below:
a) APA is designed to help taxpayers by resolving actual or potential transfer pricing disputes cooperatively, as an alternative to the traditional examination process.
b) Advance Pricing Agreement programme strengthens the Governmentâs resolve to fostering a non-adversarial tax regime.
c) An Advance Pricing Agreement provides certainty concerning the tax outcome of the taxpayerâs international transactions
d) The Indian Advance Pricing Agreement scheme has been appreciated nationally and internationally for being able to address complex transfer pricing issues fairly and transparently.
Terms of Advance Pricing Agreement:
The Advance Pricing Agreement includes the following things:
a) The international transactions covered by the APA
b) The agreed transfer pricing methodology
c) Determination of Armâs length price
d) Definition of any relevant terms
e) Critical assumption
a) The international transactions covered by the APA
b) The agreed transfer pricing methodology
c) Determination of Armâs length price
d) Definition of any relevant terms
e) Critical assumption
Different types of APAs
An APA can be unilateral, bilateral, or multilateral
- Unilateral APA: an APA that involves only the taxpayer and the tax authority (CBDT) of the country where the taxpayer is located.
- Bilateral APA (BAPA): an APA that involves the taxpayer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located, and the foreign tax authority.
- Multilateral APA (MAPA): an APA that involves the taxpayer, two or more AEs of the taxpayer in different foreign countries, tax authority of the country where the taxpayer is located, and the tax authorities of AEs.
Eligibility for Advance Pricing Agreement
The following persons are eligible to apply for the Advance Pricing Agreement:
- The person who has entered into an international transaction (rollback)
- The person proposing to undertake an international transaction
Fee for filing an Advance Pricing Agreement
| S.No | Amount Of International Transaction | Fee Details |
|---|---|---|
| 1 | Amount | Rs.10 Lakh |
| 2 | Amount | Rs.15 Lakh |
| 3 | Amount | Rs.20 Lakh |
Pre-Filing Consultation for APA
The person proposing to enter into an APA have to make an application in writing for a prefiling consultation to the Director-General of Income Tax (DGIT).
On receipt of the request, the team will hold pre-filling consultation with the person. The
component authority in India or his representative will be associated in pre-filling
consultation involving bilateral or multilateral agreement
The pre-filing consultation includes the following things:
- Determine the scope of the agreement
- Identify the transfer pricing issues
- Determine the suitability of international transaction for the agreement
- Discuss broad terms of the agreement
Cancellation of the APA
An Advance Pricing Agreement can be cancelled on account of the following:
- Failure to comply with terms of APA
- Failure to file an annual compliance report
- Material errors in an annual compliance report
- No consensus on the terms of the revised Advance Pricing Agreement
- The effect cannot be given to rollback provision of an APA due to failure on the part of the applicant
Important points to be considered:
Each year Annual Compliance Report in Form No. 3CEF needs to be filed before DGIT (IT)
- The APA can be cancelled/revised if critical assumptions are violated or conditions are not met
- If the Compliance Audit results in a finding that the assessee has failed to comply with the terms of the agreement, the agreement can be cancelled
- Non filing of Compliance Report or the report contains material errors, it may result in cancellation of the agreement
