TaxTMI 
TaxTMI 
Advance Pricing Agreement (APA) Programme of India - Annual Report (2016-17)
X X X X Extracts X X X X
X X X X Extracts X X X X
....dvance Pricing Agreement (APA) Programme of India - Annual Report (2016-17) <br>News and Press Release<br>Dated:- 2-5-2017<br><BR>Advance Pricing Agreement (APA) Programme of India - Annual Report (2016-17) ============= Document 1 सतà¥à¤¯à¤®à¥‡à¤µ जयते कोष मो दणà¥à¤¡ INCOME TAX DEPARTMENT Advance Pricing Agreement (APA) Programme of India Annual Report (2016-17) Central Board of Direct Taxes April 2017 Foreword It gives me immense pleasure that the first Annual Report on the Advance Pricing Agreement (APA) Programme in India is being released today. The Programme is almost 5 years old now and has been successful in providing an alternate dispute resolution mechanism to taxpayers in respect of transfer pricing issues. The year 2016-17 has been a watershed year with the Central Board of Direct Taxes having entered into 88 Advance Pricing Agreements with taxpayers. The APA Programme is a major initiative of the Government towards fostering a non-adversarial tax regime. While the CBDT is happy with the progress of the Programme, we are aware of the challenges. An importan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t challenge facing the Programme is the availability of trained manpower to handle the complex nature of the work. Another challenge is how to expand and strengthen the Programme by providing human and physical resources. The CBDT has been working on both fronts. The first challenge is being continuously addressed by providing domestic and foreign training inputs to the Officers of the Department. As regards the second challenge, the CBDT has recently created two new posts of APA Commissioners at Mumbai and Bengaluru, which would speed up the processing of the pending applications. At this critical juncture of the APA Programme, I urge the Officers handling the APA work in the field and in the FT & TR Divisions of CBDT to continue giving their best and achieving more such spectacular results. Mhand Sushil Chandra Chairman, Central Board of Direct Taxes (i) From the desk of Member (L&C), CBDT I have been closely associated with the Indian APA Programme over the last two years. I am happy to see the manner in which the Programme has grown, which is reflected in the number of APAS that have been signed in 2015-16 and 2016-17. The APA Programme has grown due to cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tain unique aspects of the Programme, which have never been observed in routine tax administration and taxpayer interactions. Some of these unique aspects of the Programme are the following: • The sharing of a lot of information by the applicants to enable the APA teams to understand the business of the taxpayer; • One to one discussions and negotiations by the APA authorities and the applicants with regard to the transfer pricing methods to be used and the Arm's Length Price (ALP) to be adopted; • Use of e-mail and CDs to exchange information and to communicate without resorting to issuing of letters, notices, etc.; • Site visits by the APA teams to the taxpayer's premises to understand the business and observe the functions being undertaken; • The high degree of confidentiality maintained by the Department and also by the applicants with regard to the cases under the APA Programme; and • The transparency and the positive approach of all the Officers handling the APA work. I am sure that the Programme would go from strength to strength and continue to provide a Win-Win situation for both the Government of India and the taxpa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yers. 27 of 22/181274 S.K.Sahai Member (L&C), Central Board of Direct Taxes (ii) INDEX Content Sl. No. 1. 2. 3. 4. 5. Foreword by Chairman. CBDT From the Desk of Member (L&C), CBDT Introduction Data and Qualitative Analyses Conclusion Page 1 4 28 ANNUAL REPORT ON INDIA'S ADVANCE PRICING AGREEMENT (APA) PROGRAMME - 2016-17 INTRODUCTION Advance Pricing Agreement (APA) programmes are operational in a number of countries since long. Many more countries are in the process of establishing such programmes. The primary goal of such programmes is to provide certainty to taxpayers in respect of the transfer price of the cross- border transactions undertaken by such taxpayers with their group entities. Rapid growth in international trade through an increasing number of Multi National Enterprises (MNEs) has given rise to numerous tax disputes on the issue of transfer pricing. An APA is a mechanism to resolve transfer pricing disputes in advance, i.e., before the cross-border related party transaction actually takes place. The transfer price of goods and services transacted between group entities is decided in advance by the tax authorities and the taxpayers,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... so as to prevent any dispute arising from such transfer pricing. The Advance Pricing Agreement (APA) programme in India was launched in 2012 vide the Finance Act, 2012 through the insertion of Sections 92CC and 92CD in the Income-tax Act, 1961. These statutory provisions, effective from 1st July, 2012, lent the legal backing to the CBDT to enter into Advance Pricing Agreements (APAs) with taxpayers for a maximum period of 5 years in respect of international transactions between Associated Enterprises (AEs) to determine the Arm's Length Price (ALP) or to specify the manner in which the ALP is to be determined. It was stipulated that the detailed scheme of the APA would be separately notified by the CBDT. Vide notification no. 36/2012 [F. No. 133/5/2012-SO(TPL)]/SO 2005 (E), dated 30th August, 2012, the APA Scheme [Rules 10F to 10T] was inserted in the Income-tax Rules to operationalize the APA programme. Thus, the Indian APA programme, which commenced from 1st July, 2012, actually became functional and operational from 30th August, 2012 with the notification of the rules. The rules lay down the detailed procedures for filing of pre-filing consultation application; p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re-filing consultation; payments of fees; filing of APA application; processing of APA application; withdrawal of APA application; terms and conditions of APA; filing of Annual Compliance Report; Compliance Audit; revision, cancellation and renewal of APA; etc. To provide clarity to taxpayers on a number of issues concerning the APA programme, the CBDT issued a booklet containing guidance on the APA programme and answers to Frequently Asked Questions (FAQs) as part of its Taxpayers' Information series. Page 1 of 28 Roll-back of APAs was announced by the Government on 10th July, 2014. The necessary legislative changes in this regard were carried out through the Finance (No. 2) Act, 2014. The Income-tax Rules for implementing the Roll-back provisions were notified on 14th March, 2015 and the existing APA Scheme got amended accordingly. The Rollback provisions are applicable for a maximum of four years prior to the first year of the APA period. Thus, a taxpayer would be able to have certainty in matters of transfer pricing for a maximum period of 9 years by applying for an APA with Rollback provisions. Circular No. 10 of 2015 was issued by the CBDT on 10th June, 2015....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to provide clarity on Rollback issues in the form of answers to FAQs. Under our APA programme, APAs can be multilateral or bilateral (involving CBDT and the tax authorities of one or more countries) or unilateral (involving the CBDT only). Over the last 5 years, more than 800 applications have been filed in India. Majority of these applications (about 85%) are for unilateral APAs between the Indian taxpayer and the CBDT. Till 31st March, 2017, 152 agreements have been entered into (141 unilateral and 11 bilateral). The APA applications are processed and analysed by dedicated APA teams working under the overall supervision of Pr. CCIT (International Taxation & Transfer Pricing). Each APA team is headed by a Commissioner of Income- tax and the team also comprises Addl./Joint Commissioners of Income-tax and Deputy/Asst. Commissioners of Income-tax. Presently, there are two APA teams and the APA offices are located at Delhi, Mumbai and Bengaluru. In respect of unilateral APAs, the position papers developed by the APA teams are approved by the Pr. CCIT (International Taxation & Transfer Pricing) and sent to the Central Board of Direct Taxes [CBDT] for approval. In the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CBDT, officers working in the Foreign Tax & Tax Research (FT & TR-I and II) Divisions of the CBDT examine and process the position papers. Joint Secretary, FT & TR-I and FT & TR-II further process the position papers and send it for final approval of the designated Member of the CBDT. The Member approves the final negotiating position to be adopted by the APA teams. Once the negotiation is complete, a draft Agreement is sent to the CBDT for approval before the Agreement is entered into between the Board and the taxpayer. On behalf of the Board, the Agreements are entered into by either Joint Secretary, FT & TR-I or Joint Secretary, FT & TR-II. In respect of bilateral APAs, once the position papers are sent to the FT & TR-I & II Divisions by the Pr. CCIT (International Taxation & Transfer Pricing), the Competent Authority of India (either Joint Secretary, FT & TR-I or Joint Secretary, FT & TR-II depending on the country with which the bilateral APA is to be negotiated under the Tax Treaty) has to initiate discussions with his/her Page 2 of 28 counterpart in the other country. The officers in the FT & TR-I & II Divisions of the CBDT working with the Competent Authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y examine the position papers and prepare the position of the Indian Competent Authority. The same is shared with the Competent Authority of the other country. Once positions have been exchanged, the Competent Authorities of both the concerned countries discuss and negotiate the terms and conditions of the APA. If they reach an understanding, then a Mutual Agreement, containing the terms and conditions of the APA, is entered into by the Competent Authorities of both countries. Thereafter, each country has to enter into an Agreement with its own taxpayer. On the Indian side, a draft Agreement is prepared in consultation with the Indian taxpayer and the same is submitted for the approval of the designated Member in the CBDT. After approval, the APA is entered into by either Joint Secretary, FT & TR-1 or Joint Secretary, FT & TR-II (the concerned Competent Authority of India) with the taxpayer on behalf of the CBDT. This Annual Report is an initiative of the CBDT to bring into the public domain various statistical and qualitative aspects of India's APA programme, with a view to encouraging discussion and debate amongst taxpayers, policy makers, media, economists, etc.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the strengths and weaknesses of the programme. This is the first such Annual Report by CBDT on one of its programmes and that lends uniqueness to the report. The first Annual Report on the APA programme could not have been published for a year better than 2016-17, a year in which the CBDT managed to enter into 88 APAs. This is a phenomenal achievement by the CBDT and its officers working in the Foreign Tax & Tax Research Division and in the APA teams at the field level [comprising the Principal CCIT (IT & TP), APA Commissioners, Additional/Joint Commissioners and Deputy/Assistant Commissioners]. The CBDT acknowledges the cooperation and efforts of the applicants and their consultants in making the APA programme a success. This Annual Report is also unique because it actually condenses the first five years of the programme (1st July, 2012 to 31st March, 2017) into one report. This was necessary to lend proper perspective to the programme and also to cover all the years in one document. It would be the CBDT's endeavour to come out with regular Annual Reports every year henceforth. Page 3 of 28 DATA AND QUALITATIVE ANALYSES A. GENERAL ANALYSIS A.1. Number of Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plications Filed The table and the graph below depict the number of applications that have been filed so far. Table A.1 Financial Year (F.Y) UAPA BAPA Total 2012-13 117 29 146 2013-14 206 26 232 2014-15 192 14 206 2015-16 113 19 132 2016-17 78 21 99 Total 706 109 815 Graph A.1 No. of Applications filed Number of Applications Filed 250 206 192 200 150 117 113 78 100 -Unilateral APA 50 29 26 14 19 21 Biilateral APA 2012-13 2013-14 2014-15 Financial Year 2015-16 2016-17 The figures clearly show an overwhelming preference for unilateral APA applications. The primary reason for this is obvious. As the US Competent Authority was not admitting bilateral APA applications into its APA programme, Indian subsidiaries of US-based companies (who are present in large numbers in India) were forced to seek certainty on their international transactions through unilateral APAs. However, with the US Competent Page 4 of 28 Authority opening up the bilateral APA programme between the two countries from February, 2016, there has been an increase in the number of bilateral applications and also in the number of conversions of applications....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from unilateral to bilateral. A.2. Status of Applications Filed The table and the graph below depict the status of applications [as on 31st March, 2017] that have been filed so far. Table A.2 F.Y (A) No. of Applications Agreements (B) (C) (D) No. of Filed Signed out of (A) of (A) due to No. of Applications disposed off out No. of Applications Under Processing out other reasons of (A) 2012-13 146 68 12 66 2013-14 232 66 5 161 2014-15 206 15 1 190 2015-16 132 3 1 128 2016-17 99 0 0 99 Total 815 152 19 644 Graph A.2 Status of APA Applications Filed 250 232 206 200 190 161 146 150 100 68 67 66 50 132 128 99 99 96 15 5 1 3 1 00 0 2012-13 2013-14 2014-15 2015-16 2016-17 Financial Year ■No. of Applications Filed ■No. of Agreements Signed No. of Applications disposed of due to other reasons ■No. of Applications Under Processing Page 5 of 28 - The statistics on nature of applications filed – unilateral or bilateral – is pretty dynamic because applicants come up with frequent requests for conversion from unilateral to bilateral. Requests for conversion of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bilateral applications to unilateral have been rare and so far only one bilateral application filed in 2013-14 has been converted into a unilateral application. Over the last few years and as on 31st March, 2017, 19 unilateral applications filed in different years have been converted to bilateral applications. During the same period, one bilateral application has been converted to a unilateral application. As a result, there has been a net increase of 18 bilateral applications over the original number of applications filed. The reasons for disposal of applications, other than by signing, include withdrawal of applications by the applicants and merger of multiple applicants with each other resulting in signing of fewer Agreements than the number of applications filed. A.3 Agreements Signed: Year-wise The table and the graph below depict the number of Agreements that have been entered into so far, year-wise. Table A.3 F.Y Agreements Signed 2013-14 5 2014-15 4 2015-16 55 2016-17 88 Total Graph A.3 100 152 Agreements Signed - Year-wise 82822 No. of Agreements Signed 0 5 4 55 88 2013-14 2014-15 2015-16 2016-17 Financial Year Page 6 of 28 It c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an be clearly seen that, as the APA programme has attained maturity, the number of Agreements signed has gone up significantly. In 2016-17, 88 APAS were concluded, which is probably the highest number of APAs entered into by any jurisdiction world-wide in the same period. It makes for an interesting comparison that while India has concluded 152 APAs in 4 years, China has entered into 113 APAs in the ten years between 2005 and 2014. An interesting and important data relates to the number of years for which tax certainty on transfer pricing matters has been achieved by this programme. Through the 152 APAs entered into so far, CBDT has managed to provide cumulative tax certainty of 1010 years to these 152 taxpayers. These 1010 years include 277 years covered under the Rollback period of the concluded APAs. 78 Agreements - out of the 152 entered into so far - have Rollback provisions. In the 152 Agreements entered into till date, 6 have been entered into with non-resident taxpayers while the remaining are with resident Indian taxpayers. B. UNILATERAL APAS B.1 Applications Filed (Original and Post-Conversion) As mentioned earlier, unilateral applications have been fav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oured more by the taxpayers. As also mentioned earlier, this trend is slowly undergoing a change with the operationalisation of the India-USA bilateral APA programme. As can be seen in the table below, 706 unilateral applications were originally filed. It needs to be clarified that where an application has requests for both unilateral and bilateral APAs, the application is counted as a bilateral application. Table B.1 F.Y Applications (Original) Applications (Post-Conversion) 2012-13 117 110 2013-14 206 204 2014-15 192 183 2015-16 113 113 2016-17 78 78 Total 706 688 Page 7 of 28 Graph B.1 Unilateral APA Applications No. of Applications 250 206 204 192 200 183 150 117 110 100 50 50 113 113 78 78 Applications (Original) 0 Applications (After Conversions) 2012-13 2013-14 2014-15 Financial Year 2015-16 2016-17 As mentioned earlier in the report, there has been a net increase of 18 in the number of bilateral applications due to conversions from unilateral to bilateral. Correspondingly, the number of unilateral applications filed originally has also come down by the same number. B.2 Status of Unilateral Applications Filed The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....table and the graph below depict the status of unilateral applications [as on 31st March, 2017] that have been filed so far. Table B.2 F.Y (A) No. of Applications Filed (Post-Conversion) (B) No. of Agreements Signed out of (A) (C) No. of Applications Disposed off out of (A) due to other (D) No. of Applications under Processing out of (A) reasons 2012-13 110 58 5 47 2013-14 204 65 5 134 2014-15 183 15 1 167 2015-16 113 3 1 109 2016-17 78 0 0 78 Total 688 141 12 535 Page 8 of 28 Graph B.2 Applications 250 200 Status of UAPA Applications 204 183 167 No. of Applications Filed 150 110 100 65 58 47 50 134 113 109 78 78 5 5 1513100 0 T 2012-13 2013-14 2014-15 Financial Year 2015-16 2016-17 No. of Agreements Signed ✔ No. of Applications disposed of due to other reasons No. of Applications under Processing B.3 Agreements Signed: Year-wise The table and the graph below show the number of unilateral APAs entered into in the last 4 years. The increase in the number of Agreements signed in 2016-17 is very significant. Table B.3 F.Y Agreements Signed 2013-14 5 2014-15 3 2015-16 53....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2016-17 80 Total 141 Page 9 of 28 Graph B.3 Agreements Signed (Year-wise) No. of Agreements Signed 100 80 60 40 20 5 80 53 2013-14 2014-15 2015-16 2016-17 Financial Year It is interesting to note that through the 141 unilateral APAs entered into so far, CBDT has managed to provide tax certainty of 931 years to these 141 taxpayers. These 931 years include 253 years covered under the Rollback period of the concluded APAs. 67 Agreements – out of the 141 entered into so far have Rollback provisions. B.4 Duration of Processing A very important aspect of any APA programme is the time taken to process an application and conclude an agreement. Different countries have managed to achieve varying timelines to conclude APAs. For example, USA has managed an average timeline of 34 months for unilateral APAs and 51 months for bilateral APAs in 2016. It is a revelation that India has managed to conclude unilateral APAs in 29 months on an average. This is better than what most countries have achieved. The detailed analysis of this is depicted in the table and graph below. The timelines for concluding bilateral APAs has been discussed later in this rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort. Table B.4 Duration of Processing Within 12 Months Number of Agreements Signed 7 13-18 Months 13 19-24 Months 26 25-30 Months 31 31-36 Months 43 37-42 Months 11 43-48 Months 10 Total Agreements Signed 141 Average Time Taken For Each Agreement – 28.93 Months Page 10 of 28 Graph B.4 Duration of Processing No. of Agreements Signed 4233225050 15 7 13 26 31 43 11 10 Within 12 Months 13-18 Months 19-24 Months 25-30 Months Duration 31-36 Months 37-42 Months 43-48 Months As can be seen from the above data, India has been very proactive in concluding unilateral APAs. In fact, more than 80% of the APAs entered into have been concluded within 3 years of the filing of applications and more than 30% have been entered into within 2 years. B.5 Distribution of Agreements Signed - Economic Activity-wise The table and graph below capture the data regarding the economic activity or the pre-dominant economic activity in each of the unilateral APAS entered into. Table B.5 Sl. No. Economic Activity No. of Agreements Signed 1 Service 102 2 Manufacturing 34 3 Trading 1 4 Diversified 4 Total 141 Page 11 of 28 Graph B.5 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Service 72% Distribution of Agreements (Economic Activity-wise) Trading 1% Diversified 3% Manufacturing 24% It is very clear from the above data that the service sector of the Indian economy has been overwhelmingly covered in the unilateral APAs. This is probably on expected lines because the service sector is the largest contributor to India's Gross Domestic Product and is also at the forefront of India's international trade, which in turn, raises a number of issues around the transfer pricing of such transactions. B.6 Distribution of Agreements Signed - Industry-wise The table and graph below provide information regarding the various industries covered in each of the unilateral APAs entered into. It can be clearly seen that almost 50% (70 out of 141) of the total unilateral Agreements entered into are with the Information Technology and Banking/Finance industries. This is consistent with the trend seen in our previous analysis of the economic activity covered in the unilateral APAs. It is also a positive sign that the APAs are not only about a few industries. As can be seen, there are 20 different types of industries that have availed the Indian APA pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gramme. Page 12 of 28 Table B.6 Sl. No. Industry No. of Agreements Signed 1 Information Technology 41 2 3 4 5 Banking & Finance Industrial/Commercial Goods Manufacture Pharmaceutical Consumer Goods Manufacture 29 16 10 6 6 Oil & Gas 6 7 Engineering Services 5 8 Telecommunication 5 9 Foods & Beverages 3 10 Power & Energy 3 11 Shipping 3 12 Automobile 2 13 Healthcare 2 14 Infrastructure & Real Estate 2 15 Media & Communication 2 16 Textile 2 17 Chemical 1 18 Forestry 1 19 Tourism & Hospitality 1 20 Trading & Logistics 1 Total 141 Page 13 of 28 Graph B.6 Foods & Beverages 2% Distribution of Agreements Media & Communication 1% Industry-wise Healthcare Textile 1% 1% Automobile 1% Infrastructure & Real Estate Power & Energy 2% Shipping 2% Others 3% Telecommunication 4% Engineering Services. 4% Consumer Goods Manufacture 4% Oil & Gas 4% Pharmaceutical 7% Industrial/Commercial Goods Manufacture 11% 1% Information Technology 29% Banking & Finance 21% B.7 Nature of Transactions Covered The table and graph below provide information about the nature of international transactions cov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered in the unilateral APAs entered into. It can be seen that there are as many as 29 types of international transactions that have been covered in the unilateral APAs. A total of 292 international transactions have been covered under these 141 APAs entered into so far. Provision of Software Development (SWD) Services and provision of IT enabled Services (ITeS) feature predominantly in the APAs entered into. This is on expected lines because a majority of the APA applications have included such transactions to be covered under the Agreements. Page 14 of 28 11 Table No. B.7 Sl. No. Nature of Transactions No. of Transactions 1 Provision of SWD Services 45 2 Provision of IT enabled Services 3 Intra-group Payments 4 Sale of Goods 5 Purchase of Goods 6 Provision of Investment Advisory Services 7 Interest Payment 8 Provision of Business Support Services 9 Provision of Marketing Support Services 10 Provision of Engineering Design Services Provision of Technical Services 4733273200 17 13 12 Other Payments 13 Provision of R&D Services 14 Distribution/Trading of Goods 15 Interest Receipts 16 17 Other Receipts Provision of Corporate Guarantee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 18 Royalty Payments 19 Provision of KPO Services 20 Provision of Management Services 21 Provision of Other Services 22 Royalty Receipts 12 9 9 9 10 6 5 4 4 4 4 4 3 3 3 3 23 Forward Contracts 24 Intra-group Receipts 25 Provision of Engineering Services 222 26 Commission Payments 1 27 Commission Receipts 1 28 Payment of Corporate Guarantee Fees 1 29 Transfer of Shares 1 Total 292 Page 15 of 28 Graph B.7 Nature of Covered Transactions Provision of SWD Services 45 Provision of IT enabled Services Intra-group Payments 40 33 Sale of Goods 30 Purchase of Goods Provision of Investment Advisory Services Interest Payments Provision of Business Support Services Provision of Marketing Support Services Provision of Technical Services Provision of Engineering Design Services Other Payments Provision of R&D Services Provision of Corporate Guarantee Royalty Payments Interest Receipts Distribution/Trading of Goods Other Receipts Provision of Management Services Provision of Other Services Provision of KPO Services Royalty Receipts Intra-group Receipts Forward Contracts Provision of Engineering Services Commission Paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts Transfer of Shares Payment of Corporate Guarantee Fees Commission Receipts 05 10 10 15 20 25 30 35 40 40 No. of Transactions 45 50 Page 16 of 28 B.8 Transfer Pricing Methods Used Taxpayers request tax authorities for an APA so that they can achieve certainty about the transfer pricing method and/or the Arm's Length Price (ALP) to be used to benchmark their international transactions. It is interesting to see which transfer pricing methods have been used more frequently in the unilateral APAs concluded so far. The table and graph below throw light on that. Table B.8 Sl. No. Transfer Pricing Method No. of Transactions 1 TNM Method 213 2 Other Method 43 3 CUP Method 25 4 Cost Plus Method 4 5 6 Internal TNM Method Residual Profit Split Method 2 7 Resale Price Method 8 Profit Split Method Total 2 1 292 22 Graph B.8 No. of Transactions Transfer Pricing Methods Adopted 250 213 200 150 100 50 50 43 25 2 2 2 TNM Method Other Method CUP Method Cost Plus Method Resale Price Method Residual Profit Split Method Internal TNM Method Profit Split Method Page 17 of 28 B.9 Location of Associated Enterpris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es (AEs) The 141 APAs entered into so far have left their footprints on 118 countries where the AES of the Indian applicant company are located. This is as widespread as one could possibly imagine and also reflects the truly global reach of Multi National Enterprises (MNEs). The table below lists all the 118 countries and shows the number of APAs in which AEs located in these countries have been covered. Not surprisingly, USA tops the list and finds its entities in 93 APAs. Table B.9 SI. Countries No. of SI. Countries No. Agreements No. No. of Agreements 1 USA 93 43 Argentina 6 2 UK 55 44 Chile 6 3 Singapore 44 45 Egypt 6 4 China 33 46 Hungary 6 5 The Netherlands 29 47 Peru 6 6 Japan 28 48 7 Australia 27 49 Ukraine Bangladesh 6 5 8 Hong Kong 27 50 Bermuda 5 9 Canada 26 51 Nigeria 5 10 Germany 25 52 Romania 5 11 Malaysia 22 53 Saudi Arabia 5 12 France 21 54 Croatia 4 13 UAE 18 55 Estonia 4 14 Indonesia 17 56 Israel 4 15 Denmark 15 57 Kazakhstan 4 16 Belgium 14 58 Latvia 4 17 Brazil 14 59 Lithuania 4 18 Poland 14 60 Malta 4 19 Switzerland 14 61 Morocco 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 20 Ireland 13 62 Pakistan 4 21 Italy 13 63 Slovakia 4 22 Philippines 13 64 Algeria 3 23 Spain 13 65 Bahamas 3 24 India 12 66 Columbia 3 25 Norway 12 67 Costa Rica 3 26 Thailand 12 68 Ghana 3 27 Finland 11 69 Jersey Channel 3 28 Korea 11 70 Kenya 3 29 Mauritius 11 71 New Zealand 3 30 Sweden 11 72 Venezuela 3 31 Czech Republic 10 73 Bahrain 2 32 Mexico 10 74 Barbados 2 33 South Africa 10 75 British Virgin Islands 2 34 Vietnam 10 76 Bulgaria 2 35 Portugal 9 77 Colombia 2 36 Russia 9 78 Ecuador 2 37 Taiwan 9 79 Iceland 2 38 Luxembourg 8 80 Isle of Man 2 39 Sri Lanka 8 81 Ivory Coast 2 40 Austria 7 82 Lebanon 2 41 Greece 7 83 Panama 2 42 Turkey 7 84 Paraguay 2 Page 18 of 28 SI. Countries No. of SI. Countries No. of No. Agreements No. Agreements 85 Qatar 86 Scotland 87 Senegal 88 Serbia 89 Trinidad and 90 Tunisia 91 Uganda 2222222 102 Guatemala 1 103 Honduras 1 104 Jamaica 1 105 Kuwait 1 106 Madagascar 1 107 Malawi 1 108 Mozambique 1 92 Uruguay 2 109 North Africa 1 93 Angola 1 110 Oman 1 94 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Belarus 1 111 Puerto Rico 1 95 Brunei 1 112 Scandinavia 1 96 Cameroon 1 113 Seychelles 1 97 Cayman Islands 1 114 Sierra Leone 1 98 Congo 1 115 Slovenia 1 99 Cyprus 1 116 Tanzania 1 100 Ethiopia 1 117 Uzbekistan 1 101 Gabon 1 118 Zambia 1 Page 19 of 28 C. C.1 BILATERAL APAS Applications Filed (Original and Post-Conversion) The number of original and post-conversion bilateral APA applications filed is given in the table and graph below. Table C.1 F.Y Applications (Original) Applications (Post-Conversion) 2012-13 29 36 2013-14 26 28 2014-15 14 23 2015-16 19 19 2016-17 21 21 Total 109 127 Graph C.1 No. of Applications 40 40 36 Bilateral APA Applications 35 29 30 28 26 25 23 21 21 19 19 14 20 15 10 5 0 2012-13 2013-14 2014-15 Financial Year 2015-16 2016-17 Applications (Original) Applications (After Conversions) C.2 Applications - Country-wise Distribution The table and graph below provide the distribution of bilateral APA applications according to the country with which the APA terms and conditions are to be negotiated and finalised. In the initial years of the APA programme, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....United Kingdom (UK) and Japan were leading the list because there was no bilateral APA programme available with the United States of America (USA). However, once the USA opened its bilateral APA programme with India in February, 2016, the applications for India-USA bilateral APAs have increased. Page 20 of 28 Table C.2 Sl. No. Country No. of Applications 1 United States of America 42 2 United Kingdom 39 3 Japan 17 4 Switzerland 8 5 Sweden 5 6 The Netherlands 7 Australia 8 Denmark 9 Canada 10 Finland 11 Sri Lanka 12 South Korea Total 3 3 2 1 1 1 127 Graph C.2 USA UK Japan Switzerland The Netherlands BAPA Applications-Country-wise Distribution 17 42 39 5 Sweden Australia 3 Denmark 3 Canada Finland Sri Lanka South Korea 05 10 15 20 25 30 35 35 40 40 Applications 45 Page 21 of 28 C.3 Status of Applications Filed (Post-Conversion) The table and graph below show the status of the bilateral APA applications [as on 31st March, 2017] filed so far. Table C.3 F.Y (A) No. of Applications Filed (B) No. of Agreements Signed out of (C) No. of Applications Disposed off out of (A) due to (D) No. of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Applications under Processing out of (A) (A) other reasons 2012-13 36 10 7 19 2013-14 28 1 0 27 2014-15 23 0 0 23 2015-16 19 0 0 19 2016-17 21 0 0 21 Total 127 11 7 109 Graph C.3 40 36 GN NW Applications 25 20 35 30 15 10 10 7 5 0 19 28 Status of BAPA Applications (Post-Conversion) 222 27 23 23 21 21 19 19 0 00 00 00 2012-13 2013-14 2014-15 2015-16 2016-17 Financial Year No. of Applications Filed No. of Agreements Signed No. of Applications disposed of due to other reasons No. of of Applications under Processing It is interesting to note that through the 11 bilateral APAs entered into so far, CBDT has managed to provide tax certainty of 82 years to these 11 taxpayers. These 82 years include 27 years covered under the Rollback period of the concluded APAS. Page 22 of 28 C.4 Agreements Signed - Year wise The table and graph below show the year-wise details of Agreements entered into so far. Table C.4 F.Y 2013-14 2014-15 Agreements Signed 0 1 2015-16 2016-17 Total 2 28 11 Graph C.4 Bilateral APAs Signed (Year-wise) 9 8 00 N 10 No. of Agreements Signed 54321 2 1 8 2013-14 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....014-15 2015-16 2016-17 Financial Year Financial Year 2016-17 has seen a significant jump in the number of bilateral APAs signed with Indian taxpayers after conclusion of Mutual Agreements with the Competent Authority of the other country. Out of the 11 bilateral APAS signed so far, 6 pertain to UK and 5 to Japan. In 2016-17, the first bilateral APA between India and USA was resolved but the same could not be concluded by 31st March, 2017 due to some technical issues. C.5 Duration of Processing It is indeed praiseworthy that India has managed to conclude bilateral APAS in 39 months on an average. This is better than what many countries have managed to achieve. For example, the bilateral APAs concluded by USA in 2016 have taken 51 months on an average. The detailed analysis of this is depicted in the table and graph below. Page 23 of 28 Table C.5 Duration of Processing Number of Agreements Signed Within 12 Months 0 13-24 Months 1 25-36 Months 3 7 11 37-48 Months Total Agreements Signed Average Time Taken For Each Agreement – 39.09 Months Graph C.5 Duration of Processing of BAPA Applications No. of Agreements Signed 2 8 a 0 1-12 Months 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3-24 Months 25-36 Months 37-48 Months Duration 7 C.6 Distribution of Agreements - Economic Activity-wise The table and graph below capture the data regarding the economic activity or the pre-dominant economic activity in each of the bilateral APAs entered into. Table C.6 Sl. No. Economic Activity No. of Agreements Signed 1 Trading 5 2 Manufacturing 2 3 Service 4 Total 11 Page 24 of 28 Graph C.6 Distribution of Agreements (Economic Activity-wise) Manufacturing 2 Trading 5 Service 4 Unlike in unilateral APAs, where the service sector of the Indian economy has been overwhelmingly covered, in bilateral APAs it is the trading activity that has found marginally more coverage than the service sector. C.7 Distribution of Agreements - Industry-wise Table C.7 Sl. No. 1 2 3 Industry No. of Taxpayers General Trading 5 Automobile Telecommunication 2 4 Total 11 Graph C.7 64 Distribution of Agreements (Industry-wise) 5 2 0 Automobile Telecommunication Trading Page 25 of 28 The table and the graph above reveal that only three broad industry categories have so far been covered under bilateral APAs. This is primarily due to the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mall number of bilateral APAs concluded till 31st March, 2017. C.8 Nature of Covered Transactions Table C.8 Sl. No. Nature of the Transaction No. of Transactions 1 Availing of Intra-Group Services 7 2 Purchase and Sale of Goods 5 3 Provision of Marketing/Sales Support Services 5 4 Receipt of Commission Fee 2 5 Payment of Royalty Fee 2 6 Provision of IT enabled Services 1 Total 22 Graph C.8 Nature of Covered Transactions Availing of Intra-Group Services Purchase and Sale of Goods Provision of Marketing/Sales Support Services Payment of Royalty Fee 2 Receipt of Commission Fee 2 Provision of IT enabled Services 7 01 2 3 4 5 6 7 8 No. of Transactions It is interesting to note from the above table and graph that – unlike unilateral APAs entered into till 31st March, 2017 - provision of software development services does not figure at all as a covered transaction in the bilateral APAs concluded by the CBDT. Availing of intra-group services by the Indian applicants has been the most covered international transaction in the bilateral APAs. Page 26 of 28 C.9 Transfer Pricing Methods Adopted As can be seen from the data below, TNM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....M is the most preferred transfer pricing method to be adopted in the bilateral APAs entered into till 31st March, 2017. This is similar to the trend in unilateral APAS. Table C.9 Sl. No. Transfer Pricing Method 1 TNM Method 2 CUP Method Graph C.9 Total No. of Transactions 20 2 22 Transfer Pricing Methods Adopted 20 250 15 10 No. of Transactions 5 2 CUP Method 20 20 TNM Method Methodology Page 27 of 28 CONCLUSION The Indian APA programme has matured over the past five years and the number of agreements getting signed is testimony to that. Complex transfer pricing issues, which were prone to long drawn litigation, are being increasingly resolved through APAs. The resolutions have been to the satisfaction of both taxpayers and the Government. While taxpayers have managed to get certainty over transfer pricing issues for five or nine years (depending upon whether rollback provisions are applicable to an agreement), the Government has been able to divert resources away from the audit and litigation processes to more productive work. More importantly, APAs are also ensuring that the Government gets assured revenues from big taxpayers on the basis ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the terms and conditions embedded in the Agreements. For example, in the case of a global IT behemoth, the Indian entity declared more than Rs. 5,000 Crore as additional income after entering into an APA with the CBDT recently. This translates to a tax payment of more than Rs. 1,500 Crore without getting into any litigation or there being any dispute. The Indian APA programme is poised to move ahead quicker than it has done so far. The Government is aware of the benefits of the programme and how it is helping in creating a conducive environment for global corporate giants to do business in India. In view of this, the Government is committed to strengthen the programme by providing it with adequate human and physical resources. All this augurs well for both the taxpayers and the tax administration. Page 28 of 28<BR> News - Press release - PIB....