This Article is From Jan 13, 2017

Tax Department Signs Advance Pricing Pact With Japanese Firm

Tax Department Signs Advance Pricing Pact With Japanese Firm
New Delhi: The tax department on Friday signed a Bilateral Advance Pricing Agreement (BAPA) with Indian subsidiary of a Japanese trading company as the department looks to reduce litigations by providing certainty in transfer pricing.

Recently, the Central Board of Direct Taxes (CBDT) has also modified an existing Bilateral Advance Pricing Agreement with another Indian subsidiary of a Japanese company to include rollback provisions, an official statement said.

In all, three Bilateral Advance Pricing Agreements are now signed with Indian subsidiaries of Japanese companies, all including rollbacks. The total number of Bilateral Advance Pricing Agreements entered into by CBDT now stands at eight, it added.

The APA scheme was introduced in the Income-tax Act in 2012 and the 'Rollback' provisions were introduced in 2014.

The statement said signing of BAPA is an important step towards ascertaining transfer pricing matters of multinational company cases and dispute resolution.

Under the Agreement, certainty in tax treatment is provided for the next five years while rollback provides dispute redressal for a maximum of four past years preceding APA years.

A Bilateral Advance Pricing Agreement may be preferred by multinational companies since finalisation of the same involves reaching an understanding between the tax administrations of the two countries and for the transfer pricing adjustments done in the hands of the Indian entity, corresponding adjustment is available in the hands of related foreign entity, thereby relieving economic double taxation, the statement said.

Noting that the progress of the Advance Pricing Agreement scheme strengthens the government's mission of fostering a non-adversarial tax regime, the statement said the CBDT expects more BAPAs to be concluded and signed in the near future.