In an attempt to address the concerns of the MNCs in India and to mitigate the uncertainty over the resolution of the TP disputes and increased litigation costs, the Indian Govt. through the Finance Act, 2012 inserted sections 92CC and 92CD in the Income Tax Act 1961 introducing APA provisions with effect from July 1, 2012. The scheme was notified by MOF vide notification no. 36/2012 dated August 30, 2012 (Rules 10F to 10T of Income Tax Rules, 1962).
APAs are agreements between companies and tax authorities of a country and essentially deal with transfer pricing issues. They decide beforehand rules of pricing between parent and subsidiary. APAs help reduce tax disputes as the basis of taxation is decided and give clarity on taxation to the companies.
In 2013-14, the first year of APA rollout, 146 applications were filed. More than 240 companies have already sought APAs in the next fiscal. The agreements will shield a company from future questions from tax authorities, litigation and compliance burden for a period of 5 years once an agreement is reached.
“India’s APA programme has done better than many countries as we have been very swift in handling applications,” said Vijay Iyer, Partner and National Head, Transfer Pricing, EY.
(Economic Times: March 31, 2014)