The Central Board of Direct Taxes (CBDT) entered into a Bilateral Advance Pricing Agreement (BAPA) on the 13th of January, 2017 with Indian subsidiary of a Japanese trading company. Recently, the CBDT has also modified an existing Bilateral APA with another Indian subsidiary of a Japanese company to include rollback provisions. Thus, total three Bilateral APAs are now signed with Indian subsidiaries of Japanese companies all including rollbacks. The total number of bilateral APAs entered into by the CBDT is now eight.

The APA Scheme was introduced in the Income-tax Act in 2012 and the “Rollback” provisions were introduced in 2014. Signing of bilateral APA is an important step towards ascertaining certainty in transfer pricing matters of multinational company cases and dispute resolution. Under BAPA, certainty in tax treatment is provided for the next 5 years while rollback provides dispute redressal for a maximum of four past years preceding APA years. A BAPA may be preferred by multinational companies since finalisation of the same involves reaching an understanding between the tax administrations of the two countries and for the transfer pricing adjustment done in the hands of the Indian entity, corresponding adjustment is available in the hands of related foreign entity, thereby relieving economic double taxation. The progress of the APA Scheme strengthens the Government’s mission of fostering a non-adversarial tax regime.  The CBDT expects more BAPAs to be concluded and signed in the near future.

Bilateral Advance Pricing Agreements provide transfer pricing certainty and rollback enables corresponding adjustments to mitigate economic double taxation. Bilateral Advance Pricing Agreements (BAPAs) establish a pre agreed transfer pricing framework between two tax administrations, providing prospective certainty in tax treatment for the APA term. Inclusion of rollback provisions permits application of the APA methodology to specified prior years, enabling corresponding adjustments in the other jurisdiction and addressing economic double taxation. Bilateral APAs align both countries' positions, facilitate corresponding adjustments for transfer pricing changes, and advance a non adversarial tax regime.