CBDT has signed bilateral Advance Pricing Agreements (APAs) with two UK-based firms, a move that will help reduce transfer pricing disputes concerning intra-group transactions.
"The two bilateral APAs were signed with two Indian group entities of a UK-based multi-national company. The APAs cover the period 2013-14 to 2017-18 and also have a rollback provision for two years (2011-12 and 2012-13)," a finance ministry statement said today.
With the signing of the bilateral APAs on January 29, the two Indian companies have been provided with tax certainty for 12 years each (5 years under Mutual Agreement Procedure and 7 years under APA).
"This is a significant step towards providing a stable and predictable tax regime," the statement added.
This takes the total number of bilateral APAs signed by CBDT to three. The first bilateral APA was signed with Japan in December 2014.
An APA, usually for multiple years, is signed between a taxpayer and the tax authority (Central Board of Direct Taxes in India) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.
"The APAs have been entered into soon after the Competent Authorities of India and UK finalised the terms of the bilateral arrangement under the Mutual Agreement Procedure (MAP) process contained in the India-UK DTAA," it added.
Transfer pricing disputes on the same transaction were recently resolved under MAP for each of these two companies for the years 2006-07 to 2010-11.
"The two APAs are also significant because they address the issues of payment of management, service charges and payment of royalty. These transactions generally face prolonged and multi-layered transfer pricing disputes," it added.
CBDT has in all signed 41 APAs out of which 38 are unilateral and 3 are bilateral.
