The
Central Board of Direct Taxes (CBDT) entered into two unilateral Advance
Pricing Agreements (APAs) on 3 August, 2015 with two Multi-National Companies
(MNCs) which includes the first APA with a “Rollback” provision as a part of a
major initiative to usher in certainty in taxation. CBDT has so far signed 14
APAs which are related to various sectors like telecommunication, oil
exploration, pharmaceuticals, finance/banking, software development services
and ITeS (BPOs) of which 13 are unilateral APAs and one is a bilateral APA.CBDT
had entered into this APAs with US MNCs is first ever since the Finance
Ministry made announcement in March 2015.
ADVANCE PRICING AGREEMENTS (APAS):
An
advance pricing agreement is an ahead of time agreement between a taxpayer and
a taxing authority on an appropriate transfer pricing methodology for some set
of transactions (in this case international transaction) at issue over a fixed
period of time (called "Covered Transactions"). Unilateral APAs are
agreed between Indian taxpayers and the CBDT, without involvement of the tax
authorities of the country where the associated enterprise is based. Bilateral
APAs include agreements between the tax authorities of the two countries.
Rollback provision facilitates tax liability for future transactions for five
years and transactions of previous four years that now provide tax certainty to
applicant for nine years altogether, which was for five regular years of APAs
initially.
1)
It brings about transparency between
taxpayer and tax regulator regarding transfer pricing to avoid disputes .
2)
This will introduce certainty in tax law reduces compliance costs.
3)
It aims at creating investment friendly environment, the investors will adopt
this APA route with rollback provision to reduce litigation and to business
with ease.
Author:
Palak Tiwari, a freelancer writer based in Bhopal
.
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