Modi govt signs 26 advance pricing agreements; software, BPO, engineering services sectors to benefit

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September 4, 2019 6:08 PM

Central Board of Direct Taxes: With the signing of 26 advance pricing agreements this year, the total number of APAs signed by the board stands at 297.

Income Tax Day, Tax paying, pleasurable experience, CBDT chairman, Pramod Chandra Mody, Income TaxFile Photo: CBDT chairman Pramod Chandra Mody.

Advance Pricing Agreements: In order to induce certainty in international transactions and reduce the scope for litigation, the central board of direct taxes (CBDT) has entered into 26 advance pricing agreements this year. While one of these 26 agreements is a bilateral agreement (BAPA) entered into with UK authorities, remaining 25 are unilateral advance pricing agreements (UAPAs). These advance pricing agreements cover various sectors and sub-sectors of the economy like information technology, banking, semiconductor, power, pharmaceutical, hydrocarbon, publishing and Automobiles among others. The progress of the APA scheme strengthens the government’s resolve of having a non-adversarial tax regime, said the CBDT in a statement.

With the signing of these agreements entered into the first five months of this fiscal, total number of advance pricing agreements signed by the CBDT so far now stands at 297, out of which 32 are bilateral agreements (BAPAs).

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“The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner,” said the apex body for administering the direct taxes in the country.

An advance pricing agreement is a contract between the CBDT and any other entity or individual.

It determines in advance, the arm’s length price or stipulates the manner through which the price will be decided for an international transaction. And these prices will be valid for the period specified in the APA.

This process is completely voluntary in nature and is aimed at supplementing appeals and other dispute resolutions measures provided under the double taxation avoidance agreement (DTAA) for resolving the transfer pricing disputes.

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Sectors covered under 26 advance pricing agreements:

1. Contract manufacturing.

2. Provision of software development services.

3. Back office engineering support service.

4. Provision of back-office (ITeS) support services.

5. Provision of marketing support services.

6. Payment of royalty for use of technology and brand.

7. Trading and distribution.

8. Payment of charter charges.

9. Corporate guarantee.

10. Intra-group services.

11. Interest on financial instruments.

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