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The APA provisions are proposed to be implemented in the Indian Income-tax Act, 1961 through the Budget recently presented before the Indian Parliament.

An APA mechanism can be – Unilateral, Bilateral and Multilateral.

A Unilateral APA is the one which is entered into between the tax assessee and government of a country with respect to taxability of particular cross-border transfer pricing transaction(s) in that country.

Since a Unilateral APA does not determine the taxability of the transaction in other country, it does not completely eliminate the risk of double taxation of such transfer pricing transactions.

A Bilateral APA is the agreement entered into between two countries having a Double Tax Avoidance Agreement (‘DTAA’) between them, in accordance with article of Mutual Agreement Procedure therein; with respect to taxability of transfer pricing transactions affecting both.

A Multilateral APA is an extension of Bilateral APA, whereby more than two countries involved in certain transfer pricing transaction(s)  – under their respective DTAA with each other – decide on the tax sharing thereof.

Hence, Unilateral APA takes place under the domestic law of a country and Bilateral/Multilateral APA take place per the provisions of the DTAA between countries.

In the above background, it would now be clear that the proposals of APA in Indian Budget 2012-13 are of Unilateral APA. However, it must be appreciated that these would drastically bring down litigation for MNCs with respect to Indian Transfer Pricing matters.

The provisions, contained in the proposed section 92CC of the Income-tax Act, 1961, (‘the Act’) provide that the CBDT, with the approval of Central Government, may enter into an APA with any person, determining the arm’s length price or specifying the manner (including the TP Method to be applied) in which the same would be determined, with respect to an international transaction to be entered into by that person.

Such APA shall be binding on the concerned person (assessee) and the tax department with respect to the agreed transaction/s.

Accordingly, the APA provisions proposed shall be ASSESSEE AND TRANSACTION SPECIFIC.

Moreover, the same shall not be binding in case of change in law or facts having bearing on the APA.

It has also be provided that the CBDT, with the approval of Central Government, may declare an APA void ab initio, if it is found that the same has been obtained by fraud or misrepresentation of facts; upon which the provisions of the Act shall apply as if the same was never entered. Also, the period between the date of entering the APA and the declaration of same as void, shall be excluded for computing any period of limitation under the Act, and if the period of limitation after such exclusion happens to be less than 60 days, then the same would be deemed to be extended to 60 days.

It has been further provided that the CBDT may, for this purpose, prescribe a scheme specifying then manner, form, procedure and related matters; which is keenly awaited.

Finally, it is provided that where an APA application is pending before the CBDT, the same shall be deemed as ‘pending proceeding’ for the purpose of the Act.

Compiled By

B. S. Shah & Co., Chartered Accountant

Bhupendra Shah, B.Com., L.L.B. (SP.), A.C.S., F.C.A.

Hiten Paurana, B.Com., F.C.A.

N. Krishnakumar, B.Com., F.C.A., Grad CWA

Shreyam Shah, B.Com. A.C.A.,DISA

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May 2024