India’s tax authority, the Central Board of Direct Taxes (CBDT), released its fifth annual Advanced Pricing Agreement (APA) report in early September. The report provides key data and statistics about the APA program and covers aspects such as the distribution of applicants across different sectors, the type of transactions handled and the transfer pricing methodologies used.

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The fifth report provides an update on the status of applications submitted through March 31, 2023, with statistics reflecting developments through fiscal year (FY) 2022-23. During this period, the CBDT recorded the highest number of APA signatures in any fiscal year since the program began, with a total of 95 APAs.

The CBDT also entered into 32 bilateral advance pricing agreements (BAPAs) in FY23, which is the highest number of BAPAs in a financial year so far. This number represents a notable increase and is more than double the previous record of 13 BAPAs signed in a single fiscal year.

The APA report provides insights into the country-by-country distribution of these extended pricing arrangements and highlights collaboration with tax treaty partners such as Finland, the United Kingdom, the United States, Denmark, Singapore and Japan. This reflects the growing maturity of India’s relationships with various treaty partners.

India also recorded the largest number of APA signings in a single day with a total of 21 APAs signed on March 24, 2023. Completing other important milestones, the 400th Unilateral Advance Pricing Agreement (UAPA) and the 500th APA were signed in FY23.

So far, India has filed a total of 516 Advance Pricing Agreements (APAs), which have resulted in the taxation of approximately INR 190 billion (US$ 2.28 billion) of income being finalized. This represents a payment of about INR 70 billion (US$840 million), according to CBDT.

What is the Advanced Pricing Agreement Program?

Since its launch in July 2012, the Advance Pricing Agreement program has successfully addressed numerous complicated transfer pricing issues that resulted in lengthy and costly litigation. The APA program addresses actual or potential disputes and provides tax certainty to multinational companies by allowing them to negotiate how profit margins for India operations are calculated.

The APA program provides an alternative and effective dispute resolution mechanism to unify transfer pricing laws in India as the existing administrative and judicial institutions fail to address specific legal issues and instead focus mainly on factual issues.

With the APA program, India wants to create a non-controversial tax system for foreign investors. Other benefits of an APA include avoiding strict and burdensome audit requirements while providing the tax outcome based on the agreed terms of the agreement.

Dezan Shira & Associates’ transfer pricing practice specializes in helping companies navigate transfer pricing issues in related party transactions. Our team of tax experts provides comprehensive services tailored to the specific needs of each client, taking into account the specifics of their business. Whether you need assistance with transfer pricing documentation, benchmark studies, tax audits, or transfer pricing policy monitoring, please contact us [email protected]. We offer customized solutions for your transfer pricing needs.