In FY 2024-25, Central Board of Direct Taxes (CBDT) signed 174 APAs surpassing 125 APAs of FY 2023-24.
- The Ministry of Finance introduced the provisions of APA under the Finance Act, 2012, by inserting Sections 92CC and 92CD into the Income Tax Act, 1961.
What is Advance Pricing Agreement (APA)?
- An APA is an agreement between the Board (tax authority) and the person (taxpayer).
- It aims to provide certainty to taxpayers in the area of transfer pricing by specifying pricing methods and determining the arm's length price (refer to box) of international transactions.
- The term of APA can be a maximum of 5 years with no minimum period.
Key Concepts/Terms
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- Types
- Unilateral APA: It involves only the tax payer and the tax authority of the country.
- Bilateral APA: It involves the taxpayer and tax authority of the country, as well as an associated enterprise (AE) of the taxpayer in another country.
- Multilateral APA: It involves the tax payer, two or more AEs of tax payers in different foreign countries, tax authority of the country, and the tax authorities of AEs.
Significance of APAs
- Reduce the risk of potential double taxation.
- Reduce compliance cost by eliminating the risk of transfer pricing audit, etc.
- Enhance ease of doing business, particularly for multinational enterprises.
