Advance Pricing Agreement : CBDT
The Central Board of Direct Taxes (CBDT) has achieved a remarkable milestone by signing 125 Advance Pricing Agreements (APAs) during the fiscal year 2023-24.
- This surge in APA signings underscores the growing importance of transfer pricing regulations and the efforts to provide certainty to taxpayers.
- In an additional development, India and Mauritius have amended their Double Taxation Avoidance Agreement (DTAA) to curb tax evasion and ensure fair taxation practices,
- Advance Pricing Agreement is a formal arrangement between a taxpayer and a tax authority on transfer prices.
- APAs allow businesses to reduce the risk of their transaction prices being challenged by tax authorities.
- The APA programme has significantly contributed to India’s mission of promoting ease of doing business, especially for Multinational Enterprises (MNEs) with a large number of cross-border transactions within their group entities.
- Types of APAs:
- Unilateral APAs: Limit risks for transactions between domestic entities. No guarantee of avoiding double taxation for transactions with foreign entities.
- Bilateral APAs: Limit risks for transactions between a domestic entity and a foreign entity. Eliminate the risk of double taxation.
- Multilateral arrangements: They mitigate risks for transactions between related entities in 3 or more states, serving as a protective instrument for complex transactions and ensuring safety for both parties, although the proceedings take longer.
