The existing provisions of section 92CC allows the IT Department to enter into an advance pricing agreement, with the approval of the Central Government, with any person for determining arm’s length price or specifying the manner in which arm’s length price is to be determined in relation to an international transaction which is to be entered into by such person.

Thus, the existing advance pricing provisions are prospective in nature, that is , once the agreement is done, it is implemented for future years.

Budget 2014 bring in this major change, wherein Budget 2014 – Now you can go back and implement advance pricing agreements in earlier years too . This is game changer in the sense that, for same sets of transactions earlier, two sets of procedure were followed by the IT Department in the tax assessments.

Accordingly, it is proposed to insert a new sub-section 9A in section 92CC to provide that an advance pricing agreement may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the arm’s length price or specify the manner in which arm’s length price shall be determined in relation to an international transaction entered into by the person during any period not exceeding four previous years preceding the first of the previous year for which the agreement applies in case of future transactions. It is further provided that where such agreement provides for determination in respect of past transactions, the arm’s length price of such transactions shall be determined in accordance with the agreement.

This is a very welcome amendment and go a long way in reducing transfer pricing litigation. This amendment is sought to be effective from 1st October, 2014.