Income Tax News: In a remarkable feat, the Central Board of Direct Taxes (CBDT) has set a new record by finalizing 125 Advance Pricing Agreements (APAs) with Indian taxpayers during the fiscal year 2023-24. This achievement not only marks the highest number of APA signings in any financial year since the inception of the APA programme but also represents a substantial 31% increase compared to the preceding year’s signings.
Unilateral and Bilateral APAs
The APA signings for FY 2023-24 comprised 86 Unilateral APAs (UAPAs) and 39 Bilateral APAs (BAPAs). This notable milestone underscores the commitment of CBDT towards providing taxpayers with a robust mechanism for managing transfer pricing uncertainties. Under the APA Scheme, taxpayers can proactively establish the pricing methods and determine the arm’s length price of international transactions in advance for up to five future years, thus fostering predictability and transparency in tax compliance.
Enhanced Protection from Double Taxation through BAPAs
Of significant importance is the surge in Bilateral APAs signed during the same period, reflecting the growing collaboration between India and its treaty partners. The Bilateral APAs were established through Mutual Agreements with countries including Australia, Canada, Denmark, Japan, Singapore, the UK, and the US. By entering into BAPAs, Indian taxpayers gain an added layer of protection against potential instances of double taxation, thereby promoting a conducive environment for international business operations.
Contributing to Ease of Doing Business
The APA programme stands as a cornerstone of the Government of India’s mission to facilitate ease of doing business, particularly for Multi-National Enterprises (MNEs) engaged in cross-border transactions. By providing a framework for tax certainty and reducing the risk of disputes, the APA Scheme not only fosters investor confidence but also reinforces India’s position as an attractive destination for foreign investments.
Understanding the APA Scheme
The APA Scheme is a proactive approach initiated by the CBDT to mitigate transfer pricing disputes and promote tax certainty for taxpayers engaged in international transactions. Through APAs, taxpayers can voluntarily enter into agreements with tax authorities to determine the pricing methodologies and ensure compliance with arm’s length standards for their transactions. This preemptive measure not only minimizes the likelihood of tax disputes but also provides taxpayers with the option to rollback the APA for preceding years, extending the period of tax certainty up to nine years.