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Advance Pricing Agreements


Why is it in the news?

  • The Central Board of Direct Taxes (CBDT) in India entered into a record 125 Advance Pricing Agreements (APAs) with Indian taxpayers during the financial year 2023-24.
  • This marks the highest number of APA signings in any financial year since the launch of the APA program in 2012, indicating a growing trend in utilizing APAs for tax compliance.

More about the news

  • In addition to the record number of APAs, the CBDT also signed the maximum number of Bilateral APAs (BAPAs) in any financial year to date during FY 2023-24.
  • Bilateral APAs were signed as a consequence of entering into Mutual Agreements with India鈥檚 treaty partners, including countries like Australia, Canada, Denmark, Japan, Singapore, the UK, and the US.
Advance Pricing Agreement (APA)

路聽聽聽聽聽聽 An Advance Pricing Agreement (APA) is a formal arrangement between a tax authority and a multinational enterprise (MNE).

路聽聽聽聽聽聽 Under an APA, the parties agree on the MNE鈥檚 transfer pricing methodology, estimated taxable income, and tax payments for a fixed period. This reduces the likelihood of income tax disputes.

路聽聽聽聽聽聽 The APA program provides tax certainty to multinational corporations (MNCs) by allowing them to negotiate how profit margins for their India operations will be calculated. This helps in addressing actual or potential disputes related to transfer pricing.

 

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