The Central Board of Direct Taxes (CBDT) signed a record 174 Advance Price Agreements (APAs) in FY25, a higher figure than the last year’s record-high number of 125, an official release by the CBDT said on Friday.
Experts say this shows the government’s intention to provide tax certainty to foreign businesses having operations in India, to enhance ease of doing business (EoDB).
An APA is a formal, ahead-of-time agreement (typically valid for five years), between a taxpayer (a multinational enterprise) and one or more tax authorities.
This agreement determines the transfer pricing methodology for pricing the taxpayer’s cross-border related party transactions, so that disputes between the company and tax authorities are avoided till the time the APA is in place.
APAs are of three types: (a) ‘Unilateral’, which involves CBDT and the taxpayer, (b) ‘Bilateral’, involving the taxpayer and taxpayer of two countries, and (c) ‘Multilateral’, which involves tax authorities of many countries and the taxpayer.
The release said that in FY25, the Board signed the maximum number of BAPAs in any financial year till date, with the signing of 65 BAPAs, including one MAPA.
“The BAPAs were signed as a consequence of entering into Mutual Agreements with India’s treaty partners namely Australia, Japan, New Zealand, Singapore, South Korea, The Netherlands, the UK and the US,” the release said.
The figure of 174 APAs is one of the highest ever number of APAs reported by any country till date in a tax year, said the CBDT.
“It would be appropriate to note here that the number of 65 BAPAs signed by India is still far away from the BAPA figures reported by jurisdictions like the United States and Japan. However, this figure has also risen considerably from 39 in FY 2023-24,” it said.
“The year also saw India signing its first MAPA, which can technically be considered a combination of several BAPAs that are agreed together in respect of a taxpayer having operations in multiple jurisdictions at the same time. This points towards the untapped potential that this programme still holds, as well as direction in which it may evolve in years to come,” the release said.
Amit Maheshwari, Tax Partner, AKM Global, noted: “It is worth observing that CBDT has focused on expediting the process of signing Bilateral APA as the total BAPAs signed during the last three years has increased substantially. This trend will encourage other taxpayers also to come forward and opt for APA in order to avoid long drawn litigation.”
FAQs
Q. What is transfer pricing (TP)?
A. Transfer pricing refers to the pricing of goods, services, and intangible assets exchanged between related entities (or "associated enterprises") within the same multinational corporate group. In simpler terms, it is the internal price one part of a company charges another part of the same company for a transaction.
Q. How is TP linked to an APA?
A. An APA determines, in advance, the appropriate Transfer Pricing Methodology (TPM) to be applied to a set of specified intercompany transactions over a fixed period of time (typically three to five years). It may also determine the actual ‘Arm's Length Price’ (ALP), to calculate the tax the company owes to authorities.
The ALP is the price calculated for a transaction between two related entities, which must be the same as the price that would have been charged between two unrelated, independent parties operating in a free market.
Because the entities are related, the price (the transfer price) is not set by market forces. The multinational group has the ability to manipulate this price to shift profits between different countries. Hence, the ALP ensures profiting shifting is prevented and the appropriate tax is paid.
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