GS 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, and Railways etc

Why in News?

The Central Board of Direct Taxes (CBDT) has entered into 18 APAs in the month of March 2019, which includes 03 Bilateral APAs (BAPAs). With the signing of these APAs, the total number of APAs entered into by the CBDT in the year 2018-19 stands at 52, which includes 11 BAPAs. The total number of APAs entered into by the CBDT as of now stands at 271, which inter alia includes 31 BAPAs.

Why we need APA?

• The primary goal of such programmes is to provide certainty to taxpayers in respect of the transfer price of the crossborder transactions undertaken by such taxpayers with their group entities.
• Rapid growth in international trade through an increasing number of Multi National Enterprises (MNEs) has given rise to numerous tax disputes on the issue of transfer pricing.

Advanced Pricing Agreement:

• An APA is a mechanism to resolve transfer pricing disputes in advance, i.e., before the cross-border related party transaction actually takes place.
• The transfer price of goods and services transacted between group entities is decided in advance by the tax authorities and the taxpayers, so as to prevent any dispute arising from such transfer pricing.
• The Advance Pricing Agreement (APA) programme in India was launched in 2012 vide the Finance Act, 2012 through the insertion of Sections 92CC and 92CD in the Income-tax Act, 1961.
• These statutory provisions, effective from 1st July, 2012, lent the legal backing to the CBDT to enter into Advance Pricing Agreements (APAs) with taxpayers for a maximum period of 5 years in respect of international transactions between Associated Enterprises (AEs) to determine the Arm’s Length Price (ALP) or to specify the manner in which the ALP is to be determined. It was stipulated that the detailed scheme of the APA would be separately notified by the CBDT.
• The progress of the APA scheme strengthens the Government’s resolve of fostering a non- adversarial tax regime.
• The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.