Advance Pricing Agreements

What is an Advance Pricing Agreement (APAs)?

According to Indian Tax Laws, it is an agreement between the Central Board of Direct Taxes (CBDT) and any person, which determines, in advance, the arm’s length price or specifies the manner of the determination of arm’s length price (or both), in relation to an international transaction.

The Organization for Economic Co-operation and Development (OECD) in its transfer pricing guidelines, defines an APAs in the following words –

“An arrangement that determines, in advance of controlled transactions, an appropriate set of criteria for the determination of the transfer pricing for those transactions over a fixed period of time”. 

Once an APA has been entered into with respect to an international transaction, the arm’s length price with respect to that international transaction, for the period specified in the APA, will be determined only in accordance with the APA.

Objective of APAs 

APAs can be applied for various international transactions:

  • To purchase or sale of raw materials, finished goods,
  • To provide services,
  • To extend financial assistance,
  • To transfer and use of tangible/intangible assets, etc.

Latest Developments 

The Central Board of Direct Taxes (CBDT) entered into nine Unilateral Advance Pricing Agreements (UAPAs) with Indian taxpayers in the month of July, 2017. Some of the UAPAs signed had rollback provisions also.

The nine APAs signed in the month of July, 2017 pertain to diverse sectors of the economy. CBDT has signed its first APA with a taxpayer engaged in supplying rigs used in Oil & Gas exploration. Other than the Oil & Gas Sector, the APAs pertain to Education, Banking, Pharmaceutical, and Manufacturing and Information Technology sectors of the economy.

The international transactions covered in these nine APAs include provision of software development services, provision of IT enabled services, provision of engineering design services, distribution, contract manufacturing, etc.

No. of Advance Pricing Agreements signed 
S. No Financial Year Unilateral APAs


Bilateral APAs




2013-14 5 00 05


2014-15 3 01 04
3.           2015-16


53 02 55
4.          2016-17


80 08 88
5.          2017-18

(Till July 2017)

18 01 19


Total 159 12 171

The CBDT expects more APAs to be signed in the near future.

Source: CBDT 

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