APAs: Boosting Tax Certainty & Business in India

CBDT signs record 125 Advance Pricing Agreements in FY24 - Image showcasing the impact of APAs on tax certainty and business growth in India
APAs: Boosting Tax Certainty & Business in India

The Central Board of Direct Taxes (CBDT) achieved a significant milestone in the financial year 2023-24 by entering into a record number of 125 Advance Pricing Agreements (APAs) with Indian taxpayers. This included 86 Unilateral APAs (UAPAs) and 39 Bilateral APAs (BAPAs), marking the highest number of APA signings in any financial year since the launch of the APA programme.

What are Advance Pricing Agreements (APAs)?

APAs are agreements between taxpayers and tax authorities that determine the transfer pricing methodology for pricing the taxpayer’s international transactions for future years. The APA programme aims to provide certainty to taxpayers in the domain of transfer pricing by specifying pricing methods and determining the arm’s length price of international transactions in advance for up to five future years. Taxpayers also have the option to roll back the APA for four preceding years, providing tax certainty for a total of nine years.

Growth in APA Signings

The number of APAs signed in FY24 represents a substantial 31% increase compared to the 95 APAs signed in the preceding financial year, FY23. This growth demonstrates the increasing popularity and effectiveness of the APA programme in providing tax certainty to businesses operating in India.

With the addition of 125 APAs in FY24, the total number of APAs signed since the launch of the APA programme has reached 641. This includes 506 UAPAs and 135 BAPAs. The consistent growth in the number of APAs signed each year highlights the success of the programme in addressing transfer pricing disputes and providing a stable tax environment for multinational enterprises.

International Collaborations

The CBDT has successfully signed BAPAs with several of India’s treaty partners, including Australia, Canada, Denmark, Japan, Singapore, the United Kingdom, and the United States. These agreements are a result of mutual understanding and collaboration between the Indian tax authorities and their foreign counterparts, ensuring a coordinated approach to transfer pricing and the avoidance of double taxation.

Benefits of the APA Programme

The APA programme offers several benefits to taxpayers, most importantly, providing tax certainty and avoiding double taxation. By entering into an APA, taxpayers can have a clear understanding of the pricing methods and the arm’s length price for their international transactions, reducing the risk of transfer pricing disputes. BAPAs provide an additional layer of protection by ensuring that the taxpayer is not subjected to double taxation in the event of a transfer pricing dispute.

Contribution to Ease of Doing Business

The APA programme has been instrumental in supporting the Government of India’s efforts to promote ease of doing business in the country. By providing a transparent and predictable tax environment, the programme has helped attract foreign investment and encouraged multinational enterprises to expand their operations in India.

Global Recognition

The success of the APA programme in India has been recognized globally, with many countries seeking to emulate its model. The CBDT’s commitment to the programme and its continuous efforts to streamline the APA process have been widely appreciated by the international business community.

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