In recent news, an exceptional breakthrough was made by The Central Board of Direct Taxes (CBDT) as it entered into a record-breaking 95 Advance Pricing Agreements (APAs) with Indian taxpayers in the fiscal year of 2022-23. The record included 63 Unilateral APAs (UAPAs) and 32 Bilateral APAs (BAPAs) – the highest count of BAPAs signed by CBDT in any fiscal year till date. Mutual agreements with India’s treaty partners, namely Finland, the UK, the US, Denmark, Singapore, and Japan, facilitated such a massive number of BAPA signings.
Understanding Advance Pricing Agreement (APA)
Introduced in 2012 via Finance Act’s Sections 92CC and 92CD in the Income-tax Act, 1961, an Advance Pricing Agreement (APA) is an understanding between a taxpayer and a tax authority. An APA outlines the transfer pricing methodology used to price a taxpayer’s international transactions for future years. Once an APA is concluded, the devised methodology is adhered to for a specified duration, dependent on the fulfillment of certain conditions.
Different Types of APA
There are three types of APAs: Unilateral, Bilateral, and Multilateral. A Unilateral APA involves only the taxpayer and the tax authority of the country where the taxpayer resides. Bilateral APA (BAPA), on the other hand, is an agreement that involves not only the taxpayer but also the associated enterprise (AE) of the taxpayer in the foreign country, the authority of the country where the taxpayer resides, and the foreign tax authority. Lastly, a Multilateral APA (MAPA) includes the taxpayer, two or more AEs of the taxpayer in different foreign countries, the tax authority of the country where the taxpayer is located, and the tax authorities of AEs.
The Impact of APA Programme
The APA programme has proven to be a vital tool in the Government of India’s efforts to promote ease of doing business. The programme provides remarkable benefits especially for cross-border transactions.
About Central Board of Direct Taxes (CBDT)
The CBDT, established under the Central Board of Revenue Act, 1963, is a statutory body that operates as part of the Department of Revenue in the Ministry of Finance. Its main responsibilities include providing inputs for direct tax policy and planning in India, as well as overseeing the administration of direct tax laws through the Income Tax Department. Direct taxes encompass income tax and corporation tax, among others.
