New Delhi: Government has announced the much awaited Advance Pricing Agreement (APA) rules which will allow companies to seek guidance on pricing of goods and services in advance, with a view to reduce transfer pricing tax disputes.

APA is a pact, usually for multiple years, between a taxpayer and a taxing authority (Central Board of Direct Taxes in India) on an appropriate transfer pricing methodology for a set of international transactions in future.

As per the APA rules notified by the Finance Ministry, a person who has undertaken an international transaction or is contemplating one, can enter into the agreement with the CBDT.

"Once the company enters into an agreement, it is absolved from the future litigation and also lot of compliance procedures," Senior Director, Deloitte India Mudigonda Vishweshwar said commenting on the notification.

1About Rs 60,000 crore is locked up in litigation related to transfer pricing -- a mechanism used by MNCs in transaction prices between its different entities. The mechanism is allegedly abused by some companies to transfer profits to their subsidiaries in low tax countries.

A company which is proposing to enter into an APA has to necessarily attend a pre-filing consultation with the CBDT.

However, firms have been given option to remain anonymous during pre-consultation stage if they do not want to share all the details initially with tax authorities.

"Pre-filing consultation would help the companies to understand the approach to be adapted by authorities actually before entering into the agreement," Vishweshwar said.

Vijay Iyer, Partner and Transfer Pricing Leader with Ernst & Young said "the Rules, which were much awaited, will provide greater clarity to taxpayers on the APA programme".

He said the APA regime, comprising of unilateral, bilateral, and multilateral programmer is "a big positive and ... a big step towards creating an environment of resolution of disputes".

Fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction up to Rs 100 crore, Rs 15 lakhs for those up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore, the rules said.

Though the provision for APA was included in the proposed Direct Taxes Code (DTC) Bill, the Centre has brought forward its implementation by including it in Finance Bill 2012.

Experts said several foreign firms and also large Indian companies having global presence would benefit from the APA.

In his Budget 2012-13 speech, the then Finance Minister Pranab Mukherjee had said in a globalised economy with expanding cross-border production chains and growing trade within entities of same group, APA can significantly bring down tax litigation and provide tax certainty to foreign investors.


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