 "India signs first bilateral APA with Japanese company")
"The Central Board of Direct Taxes (CBDT) signed here today a bilateral APA with a Japanese Company. The APA is for a period of five years. The APA has been finalized in a period of about one and a half years, which is shorter than time normally taken in finalizing APAs internationally," the finance ministry said in a statement.
The APA scheme has been introduced to bring about certainty and uniformity in transfer pricing matters of multi-national companies and reducing litigation. In APA a deal will be signed in advance to determine the methodology for calculating arm's length price for the next five years. The margins declared as per agreed approach will not be disputed by tax officers.
"APAs will improve investment climate in the country. In the context of growing economic ties between Japan and India, especially after Prime Minister Narendra Modi's visit to Japan, this APA is expected to generate positive sentiments among Japanese investors in India," the ministry said.
Mitsui is one of the largest general trading companies of Japan operating in diverse businesses including infrastructure and energy. Toyota and Marubeni are likely to be among other Japanese companies which are in talks to sign bilateral APAs with India.
"The entire process is quite complex and normally takes a few years to complete. However, credit goes to the two authorities and the taxpayer that the first bilateral APA between India and Japan has been signed in less than two years. This will convey a strong positive message to investors in India," said SP Singh, Senior Director, Deloitte.
To avoid protracted litigation, many multinational companies have decided to adopt the APA route. In the first year, 146 applications were filed, which was a record compared to APA program of any other country. This was broken in the second year, when 232 applications were filed. To make APA route more attractive and to further reduce litigation in 2014 the government introduced roll back provisions whereby not only future 5 years will be covered, but past four years will, also, be covered.
On March 31, 2014, five unilateral APAs were signed, wherein the agreement was reached between taxpayer and the CBDT. These APAs were concluded within almost a year.
The Double Taxation Avoidance Agreements (DTAAs) with Germany, France, Singapore, Italy and South Korea don't provide for a bilateral APA. Some companies from these countries such as Samsung, LG, and Siemens are learnt to have shown interest in bilateral APAs but are not eligible currently, and as a result most applications have come from Japan and the UK.
India will renegotiate its tax treaties with Germany, France, Singapore, Italy and South Korea to pave way for bilateral APAs with these countries. If renegotiation takes long, it might also consider unilaterally changing its position in the treaties to allow multinationals sign for APAs in India.