Advance pricing agreements and its issues

An APA is an agreement between the Central Board of Direct Taxes and any person, which determines, in advance, the arm’s length price or specifies the manner of the determination of arm’s length price (or both), in relation to an international transaction, the arm’s length price with respect to international transaction, for the period specified in the APA, will be determined only in accordance with the APA. The APA process is voluntary and will supplement appeal and other Double Taxation Avoidance Agreement (DTAA) mechanism for resolving transfer pricing dispute. The terms of the APA can be a maximum of five years.

In this article we will discuss on Advance pricing agreements and its issues.Advance pricing agreements and its issues

Section 92CC – Advance pricing Agreement and its issues

1)      The Board, with the approval of the Central Government, may enter into an advance pricing agreement (APA) with any person. The APA shall determine the ALP or specify the  manner in which ALP is to be determined, in relation to an international transaction to be entered into by that person.

2)      The manner of determination of ALP, may include the methods referred specified  in 92C or any other method. In addition there may be such adjustment or variations, as may be necessary to do so.

3)      The APA overrides the TP provisions. Any international transaction , for there exists a APA, the ALP shall be determined as per the APA.

4)      The APA shall be valid for such period as may be specified in the agreement. However the period cannot exceed five consecutive years.

5)      Tha APA shall be binding

a)      On the person and in respect of the transaction in relation to which, the APA has been entered into; and

b)      On the Commisioner, and the income tax authorities subordinate to him, in respect of the said person and the said transaction.

6)      The APA shall not be binding if there is change in law or facst having bearing on the APA.

7)      The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.

8)      Where an application is  made by a person for entering into APA, the proceeding shall be deemed to be pending in the case of the person for the purpose of the Act.


Who are eligible to apply?

Any person who –

1)      Has undertaken an international transaction; or

2)      Is contemplating to undertake an international transaction, shall be eligible to enter into an agreement.


Application for Advance Pricing Agreement

Any person, who has entered into an agreement has to submit application in Form 3CED along with the requisition fees.

The fees payable shall be in accordance with the following table based on the amount of international transaction entered into or proposed to be undertaken in respect of which the agreement is proposed.

Amount of international transaction entered into or proposed to be undertaken in respect of which agreement is proposed during the proposed period of agreement


Amount not exceeding Rs. 100Cr 10 Lacs
Amount not exceeding Rs. 200Cr 15 Lacs
Amount exceeding Rs. 200Cr 20 Lacs


Withdrawal of Application for agreement

The applicant may withdraw the application for agreement at any time before the finalization of the terms of the agreement.

The fees paid shall not be refunded on withdrawal of application by the applicant.

Revision of an agreement

An agreement, subsequent to it having been entered into, may be revised by the Bard, if,

a)      There is change in critical assumption or failure to meet a condition subject to which the agreement has been entere into.

b)      There is change in law that modifies any matter covered by the agreement.

c)       There is a request from competent authority in the other country requesting revision of agreement.

So these are the provisions of Advance pricing agreements and its issues

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