The Central Board of Direct Taxes (CBDT) has set a new record by signing 174 Advance Pricing Agreements (APAs) with Indian taxpayers in FY 2024-25, surpassing the 125 APAs signed in the previous financial year. This milestone brings the total number of APAs signed since the inception of the program to 815.
Among these, 65 agreements were Bilateral APAs (BAPAs)—the highest ever finalized in a year. These were concluded as part of Mutual Agreements with India’s treaty partners, including Australia, Canada, Denmark, Japan, Singapore, the UK, and the US.
What is an Advance Pricing Agreement (APA)?
- An APA is an agreement between the tax authority (CBDT) and a taxpayer to determine transfer pricing methods and ensure the arm’s length price of international transactions.
- Introduced: Under the Finance Act, 2012, through Sections 92CC and 92CD of the Income Tax Act, 1961.
- Validity: Maximum tenure of 5 years, with no minimum period.
- Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.
- Arm’s length price is the price at which a transaction would occur between unrelated parties acting in their own self-interest, ensuring fairness and compliance with tax regulations, particularly in transfer pricing.
Types of APAs
- Unilateral APA: Agreement between the taxpayer and the tax authority of one country.
- Bilateral APA: Involves the taxpayer, tax authority, and an associated enterprise (AE) in another country.
- Multilateral APA: Includes the taxpayer, two or more AEs in different countries, and their respective tax authorities.
Significance of APAs
- Reduces the risk of double taxation.
- Minimizes compliance costs by eliminating transfer pricing disputes.
- Enhances ease of doing business, especially for multinational enterprises (MNEs).