India and Britain signed three Bilateral Advance Pricing Agreements - (18 Nov 2016)

Direct Taxation

India and Britain signed three more bilateral Advance Pricing Agreements (in short ‘APAs’) to reduce litigation between both countries arising out of transfer pricing issues. Both the countries had earlier exchanged mutual agreements under the Mutual Agreement Procedure (MAP) Article of the India-UK Double Taxation Avoidance Convention (DTAC).

In India, the concept of Advance Pricing Agreement was first introduced by virtue of Finance Act, 2002. As per the Advance Pricing Agreement, two authorities enter into an agreement on an appropriating transfer pricing methodology for determining the value of assets and taxes on intra-group overseas transactions.

The Advance Prising Agreements are bilateral as well as unilateral. Bilateral are ones where the competent authorities of two countries negotiate in advance to determine the ALP (Arm’s Length Price) of the future international transaction. Whereas the Unilateral Advance Pricing Agreement are one where a taxpayer enter into an agreement only with one Government Authority to have tax certainty in that country.

The aim of the Advance Pricing Agreement is to get stability in international transactions, resolve the issue of transfer pricing between the concerned parties and avoid the risk of double taxation and thereby reduce litigation expenses and to get extra revenue to tax authorities. The three ‘APAs’ executed between two countries extends to International transactions in the nature of payment of intra-group service charges and pertain to the telecom industry having a roll-back provision in the Agreements.

Tags : AGREEMENT BILATERAL ADVANCE PRICING