Advance Pricing Agreement
Assessment of Tax Treaties, International Agreements, Tax Information Sharing Agreements, Comprehensive Economic Partnership Agreements and other similar agreements for taxability and relief.
The Finance Act of 2012 amended sections 92CC and 92CD to the Income-tax Act of 1961, adding the provisions of the Advance Pricing Agreement (“APA”) to create predictability and uniformity with regard to the assessment of arm’s length pricing of the international transaction.
An APA is a contract between the Central Board of Direct Taxes (“CBDT”) and any person that establishes the arm’s length price in advance or outlines the process for doing so (or both) in connection with a global transaction. As a result, once an APA has been signed with regard to a global transaction, only the terms of the APA will be used to calculate the arm’s length pricing for that global transaction for the time period stated in the APA. Once signed, the Advance Pricing Agreement binds both the person and the income tax commissioner (as well as his subordinate income tax authorities) who has jurisdiction over the person and the transaction. The maximum term for an APA is 5 years.
The following sorts of APAs are contemplated by the advance pricing agreement scheme:
- A unilateral advance pricing agreement (APA) is a contract between a person and the CBDT that excludes the treaty partner.
- Under a bilateral APA, the applicant must simultaneously submit an application to the competent authority of India and submit an application to the competent authority of the other nation through any connected businesses. The two competent authorities must negotiate and come to a mutually acceptable agreement before proceeding. Before a bilateral APA is established, the person must consent to this arrangement.
How can SalahKaro assist you?
- Assistance with strategy development and evaluation for the advance pricing agreement.
- Assistance in the preparation and submission of the tax authority’s application for advance pricing agreements.
- Assistance with legal representation before the tax authorities for discussions regarding advance pricing agreements and other matters.
- Assistance with compliance after the CBDT agreement has been signed.
FREQUENTLY ASKED QUESTIONS
For the following reasons, a person who is willing to sign an Advance Pricing Agreement may ask for a pre-filing consultation:
- Recognizing the problems with transfer pricing
- Determining the agreement’s scope
- Discussing the agreement’s provisions
- Evaluating the agreement’s fitness for international dealings
The pre-filing consultation is not binding on the applicant or the income tax department, nor shall it be interpreted as the person entering into an advance pricing agreement.
Advance Pricing Agreement will no longer be legally binding only if there is a change in the legislation or in the circumstances that are relevant to the APA.
Before the agreement’s conditions are set in stone, the applicants have the right to withdraw their application. However, there will be no return of the application fees for advance pricing agreements.
The assessees who have signed an advance pricing agreement are required to provide an annual compliance report detailing their adherence to the provisions of the agreement for each year covered by the agreement. The Director General of Income Tax (International Taxation) must receive the annual compliance report in quadruplicate within 30 days of the deadline for filing the applicable year’s income tax return or within 90 days of the agreement’s signing, whichever comes first.
The Advance Pricing Agreement may be altered if
- There has been a breach of a condition upon which the agreement was founded.
- Critical presumptions for the agreement have changed.
- There has been a law change.
- In the case of bilateral or multilateral agreements, upon request for amendment of the agreement received from the appropriate authorities of other nations.
The original agreement’s effective date and the amended agreement’s effective date must both be specified in the revised agreement.
In the following circumstances, CBDT may terminate the advance pricing agreement:
- The results of the compliance audit show that the assessee did not adhere to the contract’s requirements.
- Assessmentee’s failure to submit the annual compliance report
- The assessee’s annual compliance report contains significant mistakes.
- The assessee disagrees with the agreement’s suggested changes.
- The failure to implement the rollback clause of the agreement results in cancellation of the agreement under Rule 10RA(7) of the income tax rules.
Without first giving the assessee a chance to be heard, the agreement cannot be cancelled.
