India Issues First Comprehensive Report on Advance Pricing Accords

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Kevin A. Bell

India has signed six bilateral advance pricing agreements with the U.K. and five with Japan since 2012, when the country began offering the agreements that allow companies to avoid a transfer pricing audit in one or more countries, the government said in its first annual APA report.

“Financial Year 2016-17 has seen a significant jump in the number of bilateral APAs signed with Indian taxpayers after conclusion of Mutual Agreements with the Competent Authority of the other country,” India’s Central Board of Direct Taxes said in the report, released May 1. Mutual agreements refer to the mechanism for resolving cross-border tax disputes, while APAs seek to avoid those disputes in the first place by enabling a company and one or more taxing authorities to agree on a transfer pricing method and application for a period of several years. Agreements in India cover five years and can include a “rollback” provision to cover past years.

The CBDT said the first bilateral APA between India and the U.S. was resolved in the 2016-17 financial year, “but the same could not be concluded by 31st March, 2017 due to some technical issues” so isn’t reflected in the report’s statistics.

In addition to the bilateral APAs, the CBDT concluded 141 unilateral agreements, for a grand total of 152 completed agreements. Eighty-eight of those were completed in the 2016-17 year, the report said.

Bilateral Inventory

Over the last five years, more than 800 APA applications have been filed in India, comprising both unilateral and bilateral applications, the CBDT said. “The majority of these applications—about 85%—are for unilateral APAs between the Indian taxpayer and the CBDT,” the report said. Companies filed:

  •  29 applications for bilateral APAs in the 2012-13 financial year;
  •  26 applications in the 2013-14 year;
  •  14 applications in 2014-15;
  •  19 applications in 2015-16; and
  •  21 applications in 2016-17.
India’s average time for concluding the agreements compares favorably with the average for other countries, the report said.

“It is indeed praiseworthy that India has managed to conclude bilateral APAs in 39 months on an average,” the CBDT said, adding that this is better than what many countries have managed to achieve in their APA programs: “For example, the bilateral APAs concluded by USA in 2016 have taken 51 months on an average.”

Unilateral Agreements

India has signed 141 unilateral APAs as of March 31, the CBDT said.

The figures clearly show an overwhelming preference for unilateral APA applications, the report added. “The primary reason for this is obvious. As the U.S. Competent Authority was not admitting bilateral APA applications into its APA programme, Indian subsidiaries of U.S.-based companies—who are present in large numbers in India—were forced to seek certainty on their international transactions through unilateral APAs.”

The U.S. Competent Authority opened up the bilateral APA program between the two countries in February 2016. Since that time, there has been an increase in the number of bilateral applications and also in the number of conversions of applications from unilateral to bilateral, the CBDT said.

The CBDT said companies filed:

  •  117 applications for unilateral APAs in 2012-13;
  •  206 applications in 2013-14;
  •  192 applications in 2014-15;
  •  113 applications in 2015-16; and
  •  78 applications in 2016-17.

Global Reach

As for the completed agreements, the CBDT said the 141 Indian APAs entered into so far have left their footprints on 118 countries where the associated enterprises of the Indian applicant company are located.

“This is as widespread as one could possibly imagine and also reflects the truly global reach of multinational enterprises.”

To contact the reporter on this story: Kevin A. Bell in Washington at kbell@bna.com

To contact the editor responsible for this story: Molly Moses at mmoses@bna.com

For More Information

India's first APA report is at http://src.bna.com/ooX.

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