The Central Board of Direct Taxes (CBDT) has signed 174 Advance Pricing Agreements (APAs) during 2024-25, the highest in any year, indicating the progress in ease of doing business by providing certainty to multinationals regarding transfer pricing.
The service sector has been the top beneficiary as around 60% of total APAs signed during 2024-25 pertain to the sector alone, according to the 7th APA Annual Report released by the CBDT.
The spurt in bilateral APAs is the result of a special drive by the CBDT, sources said.
Bilateral APA aims to prevent double taxation and provide tax certainty in both the jurisdictions of treaty partners. Notably, bilateral APAs were losing popularity in the last few years due to the huge time involved in negotiation among treaty partners.
However, a significant boost in Bilateral APAs during the last 3 years indicates that the speed of negotiation among treaty partners has increased significantly. This trend will encourage other taxpayers also to come forward and opt for APA in order to avoid long drawn litigation, said Amit Maheshwari, Tax Partner, AKM Global. “The 7th Annual APA Report showcases India’s growing maturity in attaining tax certainty from transfer pricing,” he added.
The report also highlighted that CBDT signed the maximum number of 65 bilateral APAs after entering into mutual agreements with India’s treaty partners namely Australia, Japan, New Zealand, Singapore, South Korea, The Netherlands, the UK and the US.
India also signed its first multilateral APA (MAPA).
In 2024-25, the 109 Unilateral APAs (UAPAs) were entered into which have provided tax certainty for 524 APA years and 76 rollback years (31 APAs also had a rollback term), he said.
The majority of UAPAs signed in pertain to the IT industry, banking and insurance, engineering services, telecommunication and power and energy sectors.
A total of 262 transactions were benchmarked using 5 different methods, across the 109 UAPAs, with the Transactional Net Margin Method (TNMM) being the most widely used method.
The report highlighted that almost half of the BAPA applications are with one treaty partner, i.e., the US. Other treaty partners with whom a large number of applications have been filed include Singapore, UK and Australia.
The 65 BAPAs (including MAPA) entered into have provided tax certainty for a total of 370 years in India as well as the treaty partner jurisdiction.