CBDT signs four ‘Advance Pricing Agreements’

• The Central Board of Direct Taxes (CBDT) has announced signing of four more unilateral Advance Pricing Agreements (APAs).
• The four APAs signed pertain to the manufacturing, financial and Information Technology sectors of the economy.
• The international transactions covered in these agreements include contract manufacturing, IT enabled services and software development services.
• With this, the total number of APAs entered into by the CBDT has reached 130. This includes eight bilateral APAs and 122 Unilateral APAs. In the current financial year, a total of 66 APAs (five bilateral APAs and 61 unilateral APAs) have already been entered into.

About APA(Advance Pricing Agreement):

• An APA is an agreement between a tax payer and tax authority determining the transfer pricing methodology for pricing the tax payer’s transactions for future years. The methodology is to be applied for a certain period of time based on the fulfillment of certain terms and conditions (called critical assumptions).
• An APA can be unilateral, bilateral, or multilateral.
• Unilateral APA: An APA that involves only the tax payer and the tax authority of the country where the tax payer is located.
• Bilateral APA (BAPA): An APA that involves the tax payer, associated enterprise (AE) of the tax payer in the foreign country, tax authority of the country where the tax payer is located, and the foreign tax authority.
• Multilateral APA (MAPA): An APA that involves the tax payer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the tax payer is located, and the tax authorities of AEs.
• The APA provisions were introduced in India with effect from July 1, 2012 vide the Finance Act, 2012. The detailed rules (APA Rules) for the implementation of the APAs were introduced by the Central Board of Direct Taxes (CBDT) by way of a notification in the official gazette on 31st August 2012. The APA Rules provide detailed guidelines on the process along with information, data, fee details and forms that need to be filed.
• The APA regime in India is widely seen as a step towards eliminating dispute and uncertainty on transfer pricing matters by creating a conduciveness environment for negotiation to arrive at a unanimous approach.

About Central Board of Direct Taxes:

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963. The officials of the Board in their ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes.
• The Central Board of Revenue as the apex body of the Department, charged with the administration of taxes, came into existence as a result of the Central Board of Revenue Act, 1924. Initially the Board was in charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for one Board to handle, the Board was split up into two, namely the Central Board of Direct Taxes and Central Board of Excise and Customs with effect from 1.1.1964. This bifurcation was brought about by constitution of two Boards u/s 3 of the Central Board of Revenue Act, 1963.
• Composition and Functions of CBDT: a) Chairman ; b) Member (Income-tax); c) Member (Legislation & Computerisation); d) Member (Personnel & Vigilance); e) Member (Investigation); f) Member (Revenue); g) Member (Audit & Judicial).

By: Vishal