Government Signs 11 Advanced Price Agreements Targeting 30 More by March 2016

In yet another move to make the country’s tax regime cordial for businesses, the government today signed 11 more advanced price agreements (APAs) taking the total number of such agreements to 31 so far. In the current financial year, the government has signed 22 of them.

APAs are arrangements that determine in advance an appropriate set of criteria for determination of the transfer price for transactions over a fixed period of time. Transfer pricing is fixing the price for sale and purchase of goods and services between two subsidiaries of the same entity for taxation purpose.

Most of the APAs signed today were unilateral – involving only the taxpayer and the Indian revenue department – and they involved mostly service sector companies in the investment advisory and ITeS space. According to sources, the government is confident of signing 30 more APAs by March 2016.

Since 2012, when the government started signing APAs, it has received around 600 such applications, but only 31 have been signed so far.

“APAs have been at the forefront of reducing tax litigation in recent times and the finance ministry has been impressive in rolling out the APAs. The ones signed in this round are predominantly for service providers, which is a boon for the Indian business environment as we have been the front runners when it comes to service industry,” says Ayush J Rajani, Manager, Transfer Pricing, Nangia & Co.

Transfer pricing has been one of the most common reasons for tax related disputes in India. Though the exact number of cases pending in the court is not known, over Rs 45,000 crore worth of adjustments were made in transfer pricing cases in 2014/15 alone.