India: CBDT issues first comprehensive report on APA

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On May 1, 2017, the first annual report on APA programme was released by the Central Board of Direct Taxes (CBDT) which provides various statistical and qualitative aspects of the Indian APA program to promote discussions and discussions between taxpayers, policy-makers, media, economists and the like Weaknesses of the program.

India has signed six bilateral advance pricing agreements with the U.K. and five with Japan since 2012 when the country began offering the agreements that allow companies to avoid a transfer pricing audit in one or more countries, the government said in its first annual APA report.

The analyses of the report discussed below:

  1. APAs can be unilateral, bilateral or multilateral. Over the last five years, 815 APA applications were filed as of 31 March 2017 (688 applications for unilateral APAs and 127 bilateral APA applications).
  2.  On the average, India has concluded unilateral APAs in 29 months and bilateral APAs in 39 months.
  3. Substantial coverage of unilateral APAs is with respect to the service sector. This reflects the fact that the service sector is the largest contributor to India’s Gross Domestic Product and is also at the forefront of India’s international trade.
  4. The statistics further show that as many as 29 types of international transactions are covered in the unilateral APAs. A total of 292 international transactions has been included in the 141 unilateral APAs.
  5. The transaction net margin method has been used in 70% of the unilateral cases and 90% of the bilateral cases.
  6. The APAs have covered transactions with 118 countries where the affiliates of the Indian applicants are located. This reflects the truly global reach of multinational enterprises. Not surprisingly, the US tops the list and finds its entities in 93 APAs.

The Indian APA program has matured over the last five years and the number of agreements signed is a testimony to this. Complex settlement pricing problems, which were prone to lengthy legal disputes, are increasingly solved by APAs. The resolutions are for both the taxpayer and the government. While the taxpayers have managed to secure security for five or nine years (depending on whether rollback provisions are applicable to an agreement), the government has been able to shift resources from audit and process processes to a more productive work.

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