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Guidelines Announced for APAs

The Central Board of Direct Taxes issued a circular on 30 August 2012 through which it has announced the guidelines for Advance Pricing Agreements (APAs). While provisions to facilitate execution of APAs had been introduced in the Income tax Act, 1961 (Act) through the Finance Act 2012, the framework for the APA scheme was awaited, which has now been announced.Taxand India discusses the scope and coverage of the APA scheme.

The APA scheme provides for unilateral, bilateral and multilateral APAs. The scheme applies to international transactions which have been undertaken (ie transactions of a continuing nature from dealings that are already occurring) and to international transactions which are proposed to be undertaken.

The Act introduced APAs with effect from 1 July 2012. The scheme provides that for continuing transactions, an Applicant needs to apply for an APA before the first day of the financial year to which the international transaction relates, thereby, ruling out the possibility of seeking an APA for the current financial year. However, an APA can still be sought with respect to the current financial year for a transaction that is to be undertaken.

APA process

  • Stage I - Pre-filing consultation
  • Stage II - Filing of an application for an APA
  • Stage III - Preliminary processing of application
  • Stage IV - Processing of the application
  • Stage V - Post APA compliances

Discover more: The Indian Advance Pricing Agreement regime

Taxand's Take

One of the most critical elements of the APA is going to be the critical assumptions. Multinationals should note that a change in the critical assumptions would result in an amendment or termination of the APA. An important aspect of the APA process would be for taxpayers to draw up critical assumptions that are broad enough that do not require re-negotiation, especially, if a bilateral / multilateral APA has been executed.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010

Taxand's Take Author