4 New Advanced Pricing Agreements Signed By CBDT
Post on 21,July 2017   5:00 AM
By - PolyEyes Staff
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What are APAs: An APA is a contract, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related- company transactions. This is valid usually for multiple years as and when defined.

They can be classified as: Unilateral-between tax authority of country where the taxpayer is located and the tax payer.

Bilateral-between tax authority of host country, the taxpayer and the foreign tax authority.

Multilateral-between taxpayers, tax authority of host country and more than one foreign tax authorities.

The APAs signed relate mostly to the manufacturing, financial and Information Technology sectors.

The total number of APAs entered into by the CBDT now is 130 including eight bilateral APAs and 122 Unilateral APAs.

Why APAs were introduced: Multi-National Companies apart from genuine cases can misuse this by shifting profits to tax haven countries using transfer pricing mechanism. The price at which divisions of a company transact with each other is called transfer price

Here, APAs play crucial role. They can define the mechanism for Arm’s Length Price

A transaction in which buyers and sellers of any products act independently and have no relationship with each other is known as Arm’s length transaction.

They also fix the taxes to be shared between the countries on the profit made by the parent company in future.

Concluding Remark: This introduction is a step towards obtaining some amount of certainty for complex, high risk transactions to be done in future and also helpful for avoiding double taxation as there is agreement between the tax authorities of countries. Further it avoids litigation costs and saves time for tax payers and tax authorities. It would reduce the burden of redundant and cumbersome record keeping and cater to promotion of a better business environment

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