From UPSC perspective, the following things are important :
Prelims level : IAPA, BAPA
Mains level : The problem with multilateral agreements and what India needs to do to gain most from them
- The Central Board of Direct Taxes has entered into 18 APAs in the month of March 2019, which includes 03 Bilateral APAs (BAPAs).
What is an APA?
- The Advance Pricing Agreement (APA) program allows the taxpayer and the tax authority to avoid future transfer pricing disputes by entering into a prospective agreement.
- An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions.
- These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative manner, as an alternative to the traditional examination process.
- APAs gives certainty to tax-payers, reduces disputes, enhance tax revenues and make the country an attractive destination for foreign investments.
- These agreements would be binding both on the taxpayer as well as the government. Similarly, they lowers complaints and litigation costs.
The International Transactions covered in all these Agreements, inter alia, include the following, –
- contract manufacturing
- provision of software development services
- back office engineering support service
- provision of back office (ITeS) support services
- provision of marketing support services
- payment of royalty for use of technology and brand
- payment of interest