Advance Pricing Agreements (APA) - Preventing Future Tax Controversies for Tax Payers - Seite 2

An APA can be unilateral, bilateral, or multilateral.

• Unilateral APA: An APA that involves only the tax payer and the tax authority of the country where the tax payer is located.

• Bilateral APA (BAPA): An APA that involves the tax payer, associated enterprise (AE) of the tax payer in the foreign country, tax authority of the country where the tax payer is located, and the foreign tax authority.

• Multilateral APA (MAPA): An APA that involves the tax payer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the tax payer is located, and the tax authorities of AEs.

What are the key benefits of APA?

An APA provides the following benefits:

• Certainty with respect to tax outcome of the tax payer's international transactions, by agreeing in advance the arm's length pricing or pricing methodology(ies) to be applied to the tax payer's international transactions covered by the APA

• Substantial reduction of compliance costs over the term of the APA

• For tax authorities, an APA reduces cost of administration and also frees scarce resources. Consequently, APAs provide a win-win situation for all the stakeholders involved

• Removal of an audit threat (minimize rigours of audit), and deliverance of a particular tax outcome based on the terms of the agreement

Rollback provision: The recently notified APA Rollback rules also provide an option to the taxpayer to roll back the APA for prior four years to the same international transaction, subject to certain conditions. Thus, based on the amendment, an APA could be made applicable for five prospective years as well as the immediately preceding four years, thereby providing certainty to the taxpayer for a maximum period of nine years Conditions applicable for availing rollback provisions, as notified by the CBDT, are:

(a) The international transaction must be the same as the one to which the APA is applicable;

(b) The return of income for the relevant rollback year has been filed;

(c) The report in respect of the international transaction has been furnished as required under Section 92E;

(d) The rollback is requested for all rollback years in which the international transaction has taken place; and

(e)The application has been made in the prescribed format of Form 3CEDA.

About the author: 

Swati Aggarwal, Senior Manager (International Taxation) of Neeraj Bhagat & Co, an Indian Chartered Accountancy firm serving various MNC'S from across the globe. Neeraj Bhagat & Co. has its offices at New Delhi, Gurgaon and Mumbai. They are part of Allinial Global Accounting Association which is one of the World's Top 10 in accounting associations.

For more information please log on to: http://www.neerajbhagat.com or email at [e-mail]