CBDT signed two bilateral Advance Pricing Agreements (APAs) with United Kingdom

The Central Board of Direct Taxes (CBDT) on 29 January 2016 signed two bilateral Advance Pricing Agreements (APAs) with United Kingdom.

With this signing, CBDT has concluded three bilateral APAs the first one being a bilateral APA signed with Japan in December 2014. This is a significant step towards providing a stable and predictable tax regime.

With this signing, CBDT has so far signed 41 APAs out of which 38 are unilateral and 3 are bilateral.

Silent Features of two bilateral Advance Pricing Agreements (APAs)

• The two bilateral APAs were signed with two Indian group entities of a UK based Multi-National Company (MNC).

• The APAs have been entered into soon after the Competent Authorities of India and United Kingdom finalised the terms of the bilateral arrangement under the Mutual Agreement Procedure (MAP) process contained in the India-UK DTAA.

• The APAs cover the period 2013-14 to 2017-18 and also have a Rollback provision for 2 years that is 2011-12 and 2012-13.

• Transfer pricing disputes on the same transaction were recently resolved under MAP for each of these two companies for the years 2006-07 to 2010-11.

• With the signing of the bilateral APAs, the two Indian companies are provided with tax certainty for 12 years each which was split into 5 years under MAP and 7 years under APA.

• The two APAs are also significant because they address the issues of payment of management and service charges and payment of royalty.

• These transactions generally face prolonged and multi-layered transfer pricing disputes.

 What are APAs?

APAs are a meant to settle transfer prices and of setting prices of international transactions in advance. There are two types of APAs. They are bilateral APA and unilateral APA.

Bilateral APAs are those which include agreements between the tax authorities of the two countries. While, the Unilateral APAs are those agreements that are agreed between Indian taxpayers and the CBDT, without involvement of the tax authorities of the country where the associated enterprise is based.

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