With an aim to reduce transfer-pricing disputes concerning intra-group transactions, the Central Board of Direct taxes (CBDT) has entered into the bilateral advance pricing agreements (APAs) with two UK-based firms. The two bilateral APAs were signed with two Indian group entities of a UK-based multinational company. This is a significant step towards providing a stable and predictable tax regime. With the signing of the bilateral APAs, the two Indian companies have been provided with tax certainty for 12 years each- five under the Mutual Agreement Procedure (MAP) and seven under the APAs.
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. With this signing, CBDT has so far signed 41 APAs out of which 38 are unilateral and 3 are bilateral. The APAs have been entered soon after the Competent Authorities of India and United Kingdom finalized the terms of the bilateral arrangement under the MAP process contained in the India-UK DTAA.
An APA, usually for multiple years, is signed between a taxpayer and CBDT in India on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions. The first bilateral APA was signed with Japan in December 2014.