Advance Pricing Agreement (APA)
With globalization, multinational enterprises (MNEs) frequently engage in cross-border transactions within their group companies. These related-party transactions often come under scrutiny of the Income Tax Department to ensure they are carried out at “arm’s length price” as per transfer pricing laws. An Advance Pricing Agreement (APA) is a mechanism introduced under the Income Tax Act, 1961 that allows taxpayers and tax authorities to mutually agree in advance on the pricing methodology for international transactions. This provides long-term certainty, reduces litigation, and fosters a transparent tax environment.
Benefits of an APA
- Certainty in Taxation: Provides clarity on transfer pricing methods for a fixed tenure.
- Avoidance of Litigation: Minimizes risk of disputes with tax authorities.
- Cost & Time Saving: Reduces the burden of lengthy audits and appeals.
- Improved Compliance: Builds a strong reputation of transparency with regulatory bodies.
Types of APAs
Unilateral APA
- Agreement between the taxpayer and Indian tax authorities only.
Bilateral APA (BAPA)
- Agreement between the taxpayer, Indian tax authorities, and tax authorities of another country (under Double Taxation Avoidance Agreement – DTAA).
Multilateral APA (MAPA)
- Agreement involving the taxpayer, Indian tax authorities, and tax authorities of two or more countries.
Our APA Services
Pre-filing Consultation
- Assessing eligibility and scope of APA.
- Strategic advisory on feasibility and cost-benefit analysis.
Documentation & Filing
- Preparation of application and supporting documentation.
- Drafting robust transfer pricing reports with justifications.
Representation before Authorities
- Handling interactions with the Central Board of Direct Taxes (CBDT).
- Coordinating with foreign tax authorities in case of BAPA or MAPA.
Coordinating with foreign tax authorities in case of BAPA or MAPA.
- Guidance on implementation of APA terms.
- Support in annual compliance filings and renewal applications.