What has been the progress so far on the APA front?
The Indian APA programme was introduced in 2012; it was designed to bring in positive changes in the Indian transfer pricing (TP) regime, and was perceived globally as highly aggressive. It aimed at reducing TP litigation by making tax authorities and taxpayers work in collaboration. The objective of an APA is to provide tax certainty for cross-border transactions by encouraging taxpayers to present all the relevant facts before the tax authorities to arrive at mutually acceptable transfer pricing methodology (TPM).
The signing of five unilateral APAs by Indian revenue authorities and providing certainty of inter-company pricing to multinational enterprises (MNEs) for five years—FY13 to FY18—will go a long way in creating positivity in the Indian investment climate. This is especially so when Indian revenue authorities have been publicised as being aggressive due to recent high profile adjustments made to the values of transactions like equity infusion by overseas MNEs in their Indian subsidiaries and advertisement spends.
Is the response from the companies encouraging?
The number of applications filed in the latest round of APA has been even higher. Such response could be an outcome of reasons such as: (1) aggressive approach adopted by the revenue authorities during TP audits resulting in significant adjustments; (2) the safe harbour rates being set very high and having failed to attract taxpayers; and (3) pragmatic, rational and business-like approach of Indian APA authorities with determination to make the programme successful.
It is, therefore, important to learn from the past years’ experiences and imperative for the taxpayers and the Indian revenue to gear up to make the Indian APA regime one of the most effective.
How should a taxpayer prepare to seek an APA?
A taxpayer should smartly choose the APA option depending on the structure of his business and countries involved in the transaction. It is important that the decision to take the APA route is taken at an appropriate time so there would be sufficient time-period to prepare to take on the discussions with the APA authorities. The following parameters need due consideration for speeding up the process before proceeding to file an APA application:
*Preparation and evaluation of alternate options and a robust TP policy aligned to the commercial substance and documenting the same by way of inter-company agreements;
*Adherence to TP policy with a strong back-up documentation distinctly depicting functional and economic analysis;
*Documentation or information to be shared with