CBDT swings tax certainty via APAs

FinMin expects framework with US to resolve 200 disputes

As part of an initiative to usher in certainty in taxation, the Central Board of Direct Taxes (CBDT) entered into two unilateral Advance Pricing Agreements (APAs) with two multinational companies (MNCs). 

This is the first APA with a “rollback” provision that extends tax certainty for nine financial years, as against five years in APAs without “rollback”.

With this, the CBDT has so far signed 14 APAs, of which, 13 are unilateral APAs and one is a bilateral APA. The 14 APAs signed relate to various sectors like telecommunications, oil exploration, pharmaceuticals, finance/banking, software development services and ITeS (BPOs).

Unilateral APAs are agreed between Indian taxpayers and the CBDT, without involvement of the tax authorities of the country, where the associated enterprise is based. Bilateral APAs include agreements between the tax authorities of the two countries. 

APAs settle transfer prices and the methods of setting prices of international transactions in advance. The government is committed to conclude a large number of APAs to foster an environment of tax cooperation and certainty. 

Currently, a number of unilateral as well as bilateral APAs with Competent Authorities of the UK and Japan, and so on, are at an advanced stage of negotiations.

A Framework Agreement was recently signed with the US under the mutual agreement procedure (MAP) provision of the India-US Double Taxation Avoidance Convention (DTAC). 

“This is a major positive development. About 200 past transfer pricing disputes between the two countries in Information Technology — software development — Services (ITS) and IT-enabled Services (ITeS) segments are expected to be resolved under this agreement during the current year,” the Finance Ministry said in a statement.

“So far, 35 disputes have been resolved and another 100 are likely to be resolved in the next three months,” it said.

“The Framework Agreement with the US opens the door for signing of the bilateral APA with the US,”the statement said.