CBDT signs first ever two Indian APAs with Netherlands in Nov-2017. The total number of APAs entered into by the CBDT has gone up to 186
CBDT signs first ever two Indian APAs with Netherlands in Nov-2017. The total number of APAs entered into by the CBDT has gone up to 186
Press Information Bureau
Government of India
Ministry of Finance
01-December-2017 11:53 IST
Central Board of Direct Taxes (CBDT) signs two Indian Advance Pricing Agreements (APAs) in November, 2017
The Central Board of Direct Taxes (CBDT) has entered into 2 Bilateral Advance Pricing Agreements (APAs) during the month of November, 2017. These Agreements are the first ever Bilateral APAs with The Netherlands. With the signing of these Agreements, the total number of APAs entered into by the CBDT has gone up to 186. This includes 171 Unilateral APAs and 15 Bilateral APAs.
These two APAs pertain to the Electronics and Technology sectors of the economy. The international transactions covered in these agreements include Distribution, Provision of Marketing Support Services, Provision of Business Support Services, etc.
The APA provisions were introduced in the Income-tax Act in 2012 and the “Rollback” provisions were introduced in 2014. The APA Scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA Scheme has been well-accepted by taxpayers.
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.
The seven APAs signed over the last month pertain to sectors like FMCG, semi-conductor, information technology, travel and leisure, office furniture and engineering.
The Central Board of Direct Taxes (CBDT) has signed seven more advance pricing agreements (APAs) with Indian taxpayers as it looks to reduce litigation by providing certainty in transfer pricing.
The seven APAs signed over the last month pertain to sectors like FMCG, semi-conductor, information technology, travel and leisure, office furniture and engineering.
“The Central Board of Direct Taxes (CBDT) has entered into seven more Advance Pricing Agreements (APAs) during October 2017. All these agreements are unilateral,” the CBDT said in a statement.
With the signing of these agreements, the total number of APAs entered into by the CBDT has gone up to 184, which includes 171 unilateral and 13 bilateral APAs.
In 2017-18, a total of 32 APAs (2 bilateral and 30 unilateral) have been signed till date.
The APA scheme was introduced in the Income-Tax Act in 2012 and the ‘Rollback’ provision in 2014.
The scheme aims to provide certainty to taxpayers in the domain of transfer pricing by specifying methods of pricing and setting the prices of international transactions in advance.
According to the statement, 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.
The Central Board of Direct Taxes (CBDT) signed four more advance pricing agreements (APAs) in August with Indian taxpayers as it looks to reduce litigation by providing certainty in transfer pricing.
The four APAs entered into during August, 2017 pertain to various sectors of the economy like telecom, banking, manufacturing and education, an official statement said today.
“Out of these four agreements, three are unilateral and one is a bilateral,” it said.
According to the statement, the bilateral APA is for international transactions between an Indian company and a UK-based company and this is the eighth bilateral APA with the United Kingdom and 13th overall (the other five being with Japan).
With the signing of these four agreements, the total number of APAs entered into by CBDT has reached 175, the statement said, adding, “this includes 162 unilateral APAs and 13 bilateral APAs.”
Besides, in the current financial year, a total of 23 APAs (2 bilateral and 21 unilateral) have been signed till date, the statement noted.
The APA provisions were introduced in the Income-tax Act in 2012 and the “rollback” provisions were introduced in 2014.
The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance.
The statement pointed out that since its inception, the APA scheme has been well-accepted by taxpayers and that has resulted in more than 800 applications (both unilateral and bilateral) being filed so far in five years.
Noting that the progress of the APA scheme strengthens the government’s resolve of fostering a non-adversarial tax regime, the statement said 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.
Safe harbour rules are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee.
Given the lukewarm response to the safe harbour mechanism for transfer pricing, Central Board of Direct Taxes (CBDT) on Thursday cut the operating profit margin for information technology-enabled services, knowledge process outsourcing services (KPOs) and research and development (R&D) related to software and generic pharmaceutical drugs companies.
The new rules will apply to transactions of up to Rs 200 crore. Safe harbour rules, a dispute-avoidance mechanism, are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee. The rule provides the minimum operating profit margin in relation to operating expenses that a taxpayer is expected to earn for certain categories of international transactions. The same is acceptable to the income tax authorities as arm’s length price (ALP). The rules are applicable for transactions between group companies based in different countries so that a fair price or ALP is arrived at by the tax authorities. The rules have come into effect from April 1 this year and will continue to remain in force for two successive years up to assessment year 2019-2020, the board said in a statement
For software development services, safe harbour margins have been reduced to a peak rate of 18% from 22% in the previous regime. Similarly, for KPOs, a graded structure of three different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% earlier. For the third category of R&D services, the margins have been reduced to 24% from 30% and 29%, respectively, earlier. “The lukewarm response to the earlier safe habour scheme was on account of the high rates. Thus, taxpayers opted for unilateral APA process instead. The revised scheme has been designed to attract small to medium business, especially in the IT/ITeS segment, so as to give them a viable alternative to APA regime, which is both time consuming and expensive. The rates for IT/ITeS segment are more or less in line with the APAs being settled and hence the safe harbour scheme, this time, should get a positive response,” Arun Chhabra, director, Grant Thornton Advisory, said.
Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them, the board said. It added that a new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” has been introduced. “The revised safe harbour rules are a welcome step towards making safe harbour a viable alternate dispute resolution mechanism. Key highlights are: Reduction of margins for service units, introduction of safe harbour rate for low-valued services (in line with BEPS recommendation) and well-thought scheme for knowledge process outsourcing companies. Overall, it’s a welcome step towards strengthening the safe harbour option for small and mid size companies,” Kunj Vaidya, leader transfer pricing, Price Waterhouse & Co, said.
The Central Board of Direct Taxes has signed bilateral advance pricing agreements with Indian arm of a Japanese trading company, a move that will help bring down transfer pricing disputes relating to intra-group transactions.
“The Central Board of Direct Taxes (CBDT) entered into a bilateral advance pricing agreement (APA) on August 2, 2016, with Indian subsidiary of a Japanese trading company. This is the first bilateral advance pricing agreement with a Japanese company having a rollback provision in it,” a finance ministry statement said today.
Overall, it is fourth bilateral APA signed by CBDT.
Signing of the pact is an important step towards ascertaining certainty in transfer pricing matters of MNC cases and dispute resolution, the statement noted.
The APA scheme was introduced in the Income-Tax Act in 2012 and the rollback provision in 2014.
The scheme intends to provide certainty to taxpayers in the domain of transfer pricing by specifying methods of pricing and setting the prices of international transactions in advance.
Its progress strengthens the government’s mission of fostering a non-adversarial tax regime, the statement said.
CBDT expects more APAs to be concluded and signed in the near future.
An APA, usually for multiple years, is signed between a taxpayer and the tax authority (CBDT in India) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.
The Central Board of Direct Taxes (CBDT) entered into seven (7) Unilateral Advance Pricing Agreements (APAs) today, i.e., 18th July, 2016, with Indian taxpayers. Some of these agreements also have a Rollback” provision in them.
The APA Scheme was introduced in the Income-tax Act in 2012 and the Rollback” provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA scheme has attracted tremendous interest and that has resulted in more than 700 applications (both unilateral and bilateral) having been filed in just four years.
The 7 APAs signed today pertain to various sectors of the economy like banking, Information Technology and Automotives. The international transactions covered in these agreements include software development Services, IT enabled Services (BPOs), Engineering Design Services and Administrative & Business Support Services.
With todays signings, the total number of APAs entered into by the CBDT has reached 77. This includes 3 bilateral APAs and 74 Unilateral APAs. In the current financial year, a total of 13 Unilateral APAs have been entered into so far.
The progress of the APA Scheme strengthens the Governments mission of fostering a non-adversarial tax regime. The CBDT expects more APAs to be concluded and signed in the near future.
Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies
In a significant move towards a more progressive taxation policy the revenue officials have set an aggressive target of resolving about 100 transfer pricing issues by signing advance pricing agreements (APAs) with multinationals this fiscal, people close to the development said.
The government, through the Central Bureau of Direct Taxes (CBDT), had signed a record 55 APAs with multinationals in 2015-16. In all, the Indian government has signed 64 APAs, including 62 in the last two years. Now the government is getting more ambitious and officials are confident about achieving the target.
“We are already working on about 175 cases (APAs), and the target is achievable,” said a person close to the development. “Also, the officers who are dealing with the issue have now got fair amount of experience and work would be faster going ahead.”
Samir Gandhi, partner at Deloitte Haskins & Sells LLP, said, “In last one year, we have seen that the government has been very active in resolving the transfer pricing cases through the APAs. Going forward it is very likely that we will see more number of cases being resolved.”
An APA is mainly an agreement between a tax payer—mostly multinationals— and tax authority— CBDT in India’s case—where the transfer pricing methodology is determined. The methodology to calculate taxes could then be used for an agreed period of time on the tax payer’s future international transactions.
Transfer pricing disputes are mainly related to the calculation of profit made by multinational companies and how they have been shifted to their parent. Many firms have gone to court, challenging the government’s transfer pricing calculations. In July 2012, the government introduced the APA programme, which allows companies and the revenue authorities to negotiate the rate at which tax is to be paid and avoid disputes. Of the total APAs signed last year, 53 were unilateral agreements while two were bilateral agreements.
A unilateral APA is an agreement between the tax payer and the tax authority of the country (CBDT). A bilateral agreement is signed by these two plus the tax authority of the country where the multinational is headquartered.
Industry trackers expect that some more “complicated” APAs would be signed this year. “Going ahead some of these cases (APAs) will involve relatively complex cases/transactions and also application of TP methodologies of profit split and TNMM (transactional net margin method),” said Gandhi of Deloitte. Industry experts said the shift from a time when India was considered to be one of the most aggressive in the world on transfer pricing to the current situation has happened in last two years.
“There are primarily two developments which have happened in last one year in the context of transfer pricing disputes,” said Rohan K Phatarphekar, partner and national head, global transfer pricing services, at KPMG. “One is the government’s agenda of having a non-adversarial tax regime and improving the ease of doing business, which has resulted in lesser amount of transfer pricing adjustments, and the other is the CBDT circular clearly laying out the guidelines as to when a case needs to be referred for transfer pricing assessment which has reduced the overall number of cases picked up for scrutiny,” he said.
Experts also pointed out that the government’s stance on liberal transfer pricing comes at a time when many multinationals face the prospect of increasing disputes across the world. Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies.
Companies and tax consultants said that not only is the Indian government going all guns to resolve old issues in last one year, but also there has been no major transfer pricing demand as officials did not take an aggressive stance. Currently there are about 650 pending cases in APA, according to a report by Deloitte.
Going ahead, a lot of disputes also set to be resolved due to mutual APAs signed between Indian authorities and their US counterpart. This is mainly because the US Internal Revenue Service (IRS) has started accepting bilateral APA applications with India from February 16, 2016, the Deloitte report said.
