India’s Central Board of Direct Taxes (CBDT) has published its 6th Annual Report on the country’s Advance Pricing Agreement (APA) programme for the fiscal year 2023-24.

A record 125 APAs were signed, marking the highest number in a single year since the inception of the APA programme.

India signed 39 bilateral APAs with treaty partners, including the US, UK, and Japan, ensuring 183 years of tax certainty, with 18 APAs covering 52 rollback years. Of 181 transactions, 156 used the TNMM method, and over half involved the US. The average time to finalise APAs was 65.61 months.

A total of 86 unilateral APAs were finalised, primarily covering sectors such as IT, banking and insurance, engineering services, telecommunications, and power and energy. These agreements provided 420 years of tax certainty, including 56 rollback years across 17 APAs. In total, 224 transactions were assessed using five different methods, with the transactional net margin method (TNMM) being the most commonly applied in 126 transactions.

However, the report also acknowledges the challenges faced by the programme. Despite its successes, the CBDT is committed to addressing these challenges and improving the APA framework to ensure its continued effectiveness. The annual report encourages further discussion and feedback from various stakeholders, including taxpayers, policymakers, and economists, to ensure the APA programme’s ongoing evolution.

An Advance Pricing Arrangement (APA) is a formal agreement between a taxpayer and a tax authority regarding transfer pricing. Under this arrangement, the tax authority agrees to the selection and application of the transfer pricing method used in transactions between the taxpayer and their related parties. This agreement is considered an administrative decision, and the Head of the National Revenue Administration is the authorised authority to finalise it.

The APA programme allows taxpayers to enter agreements with the Indian Tax Administration to determine the arm’s length price (ALP) for international transactions, providing clarity on transfer pricing. These agreements can last up to five years, with a roll-back provision introduced in 2015. This provision enables taxpayers to apply the terms of the agreement to previous years, extending the certainty of pricing for a total period of up to nine years.

Earlier, the Central Board of Direct Taxes (CBDT) accomplished a landmark achievement by finalising a record 125 Advance Pricing Agreements (APAs) during the fiscal year 2023-24 with Indian taxpayers. This figure included 86 Unilateral APAs (UAPAs) and 39 Bilateral APAs (BAPAs), marking the highest number of APA signings in any financial year since the inception of the APA programme.