The Central Board of Direct Taxes (CBDT) has recently entered into eleven (11) more Advance Pricing Agreements (APAs) with Indian subsidiaries for foreign companies. In a major push towards providing certainty to foreign investors in the arena of transfer pricing, the CBDT signed these APAs operating in various segments of the economy like investment advisory services, engineering design services, marine products, contract R&D, software development services, IT enabled services, cargo handling support services etc.

While seven (7) of these APAs have rollback provisions contained in them, the other four (4) are Agreements for the future five years only. APAs with rollback provisions can cover a maximum period of nine (9) years in total. With this, the CBDT has so far entered into thirty one (31) APAs (thirty (30) unilateral and one bilateral).

It may be recalled that the APA programme was introduced in 2012 vide the Finance Act, 2012. In the first three years of the programme, a total of about 580 applications have been received from taxpayers. While CBDT concluded five (5) APAs within the first year, a further four (4) APAs got signed in the second year. This year has already witnessed a dramatic increase with the conclusion of twenty two (22) APAs and it is expected that further 30 to 40 Agreements could be finalized before the end of the fiscal. Analysts and experts feel this new momentum will go a long way in avoiding disputes.

Advance Pricing Agreements provide transfer pricing certainty for foreign investors, reducing future disputes and enhancing tax certainty. The Central Board of Direct Taxes has expanded use of Advance Pricing Agreements (APAs) to provide transfer pricing certainty, recently executing eleven APAs across multiple sectors; seven include rollback provisions and four are five year future agreements. Rollback APAs may cover up to nine years in total. Since the APA programme's 2012 statutory introduction, the CBDT has concluded thirty one APAs (predominantly unilateral with one bilateral), and current momentum in APA finalizations is expected to reduce disputes and enhance investor certainty.