CBDT ink two bilateral APAs with United Kingdom
The Central Board of Direct Taxes (CBDT) has signed two bilateral Advance Pricing Agreements (APAs) with United Kingdom (UK).
These APAs were signed with two Indian group entities of a UK based Multi-National Company (MNC) as per the terms of Mutual Agreement Procedure (MAP) process mentioned in the India-UK Double Tax Avoidance Agreement (DTAA).
This is third bilateral APA, India has signed so far. With these 2 agreements, CBDT has signed total 41 APAs, 38 of which are unilateral and three are bilateral.
About Advance Pricing Agreements (APAs)
- APA usually is signed between a taxpayer and the central tax authority (in case of India it is CBDT) for multiple years on an appropriating transfer pricing methodology.
- In India it was introduced in 2012 as per the provisions of the Income Tax Act, 1961.
- It provides certainty to taxpayers regarding transfer pricing that aim to avoid disputes between taxpayer and tax regulator.
- It seeks to introduce certainty in tax law by reducing compliance costs and make tax regime investment friendly.
- In case of Indian context, it seeks to give a boost to economy and ease of doing business as it provide alternative path to the investors with rollback provision to reduce litigation.
What is Transfer pricing?
- It is referred to the fixing of the price for goods and services sold between related legal subsidiaries (entities) within an enterprise.
- This is to ensure fair pricing of the asset transferred without any manipulation of reduce tax liability. For example, if a subsidiary company sells goods to a parent company, then the cost of those sold goods is deemed as transfer price.