Friday 31 July 2015

Advanced Pricing Agreement (APA)

Why in news?
- Signed by CBDT with a Japanese company in Dec 2014
- for five years
- to provide a predictable transfer pricing regime
- will reduce litigation

An APA is
- a negotiated deal between a taxpayer and the tax authorities -that sets out beforehand the method of determining the transfer pricing for transactions between a subsidiary and its foreign parent.

Transfer pricing refers to the pricing of assets, "tangible and intangible," services, and funds that are transferred within an organisation in a cross-border transaction or simply put, pricing method that the taxpayer will apply to its related-company transactions

Benefits of APA
- 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.
It provides greater certainty on the transfer pricing method adopted, mitigating the possibility of disputes and facilitating the financial reporting of potential tax liabilities. 
- Importantly, an APA also reduces the incidence of double taxation, and the costs associated with both audit defence and documentation preparation.


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