TaxTMI 
TaxTMI 
Advance Pricing Agreement (APA) Programme of India - Annual Report (2018-19)
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 (2018-19) <br>News and Press Release<br>Dated:- 29-11-2019<br><BR>============= Document 1 सतà¥à¤¯à¤®à¥‡à¤µ जयते कोष मलो दणà¥à¤¡ INCOME TAX DEPARTMENT Advance Pricing Agreement (APA) Programme of India Annual Report (2018-19) Central Board of Direct Taxes November 2019 INDEX Sl. No. 1. 2. 3. 4. 5. Content Foreword by Chairman. CBDT In the Words of Member (Legislation), CBDT Introduction Data and Qualitative Analyses Conclusion Page i ii 1 4 35 Foreword The Advance Pricing Agreement (APA) programme in India was introduced more than seven years ago. It is currently in its 7th annual cycle of examination and processing of applications. The CBDT is very happy about the fact that this programme has been accepted well by taxpayers and tax consultants. We are very proud of the results generated and the positive impact that the programme has had on the tax environment in India. The APA programme has contributed significantly to the Government's mission of enhancing ease of business. It give....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s me immense pleasure to present the third Annual Report (2018-19) of the Indian APA programme before all stakeholders. While 271 APAS had been entered into till the end of the fiscal year 2018-19, the number has since crossed 300. Suggestions and comments on the Annual Report would be appreciated. The programme does face certain challenges about which the Government is aware. Steps would be taken to augment the human resources available to work in this arena. Steps would also be taken to bring about added procedural clarity on some issues. I am aware of the efforts put in by the officers in the Foreign Tax & Tax Research Division of the CBDT and the officers in the APA teams under Principal CCIT (International Taxation) to make this programme a success. I would like to put on record my appreciation for their dedication and hard work. I am also grateful to all taxpayers for reposing their faith in our APA programme and being equal partners in its success. Раводу P.C.Mody Chairman, Central Board of Direct Taxes (i) In the Words of Member (Legislation), CBDT The Government of India and the CBDT set out on an ambitious path in 2012 by rolling o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut the Advance Pricing Agreement (APA) programme. The idea was to shake off the image of being a jurisdiction where the tax administration ran an aggressive transfer pricing regime. The idea also was to provide certainty to MNEs in respect of their transfer pricing of international transactions, so as to encourage them to invest and grow in India. With a sense of satisfaction, I can say today that those ideas have become the reality. The last seven odd years have resulted in hundreds of APAs getting signed, which has provided comfort and certainty to MNEs. I have seen the APA programme unfold before my eyes over the past seven years. I have been involved with it in various capacities since 2013 and I have been fortunate to have got an opportunity to contribute towards its success. With each passing year, we get to see more complex cases. For example, in the year 2018-19 we inked agreements in respect of international transactions like AMP expenses, payment of royalty and transfer of intangibles. This entailed adoption of transfer pricing. methods like profit split and CUP. Resolution of such complex cases augurs well for the future of the Programme. This third An....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nual Report (2018-19) on the Indian APA programme showcases some of its interesting insights. It also reflects in equal measure the work done by our officers in the Foreign Tax & Tax Research Division and in the APA teams functioning under Pr. CCIT (International Taxation). Turge taxpayers and tax consultants to keep making use of APAs to reap the benefits of certainty and dispute prevention. Alchinky Akhilesh Ranjan Member (Legislation), Central Board of Direct Taxes (ii) ANNUAL REPORT ON INDIA'S ADVANCE PRICING AGREEMENT (APA) PROGRAMME 2018-19 INTRODUCTION Advance Pricing Agreement (APA) programmes are operational in a number of countries and they are almost 30 years old in countries like Canada, USA, Japan and UK. 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 issues in advance, i.e., ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before the cross-border related party transaction actually takes place or, at least, before a dispute arises in respect of such cross-border transaction. The transfer price of goods and services transacted between group entities is decided in advance by the tax authorities and the taxpayers, 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, provided the legal basis for 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. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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; pre-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 1 | -| programme and answers to Frequently Asked Questions (FAQs) as part of its Taxpayers' Information series. 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o have certainty in matters of transfer pricing for a maximum period of 9 years at any one time by applying for an APA with Rollback provisions. Circular No. 10 of 2015 was issued by the CBDT on 10th June, 2015 to provide clarity on Rollback issues in the form of answers to FAQs. Under the Indian 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 7 years, more than 1150 applications have been filed in India. Majority of these applications (about 82%) are for unilateral APAs between the Indian taxpayer and the CBDT. Till 31st March, 2019, 271 Agreements have been entered into (240 unilateral and 31 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 four APA teams and the APA offices are located at Delhi, Mumbai and Bengaluru. In resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect 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 CBDT, officers working in the Foreign Tax & Tax Research (FT & TR-I and II) Divisions examine and process the position papers. Joint Secretary, FT & TR-I and FT & TR-II review the examination done by the officers below and further process the position papers before sending 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), the Competent 2 |~| Authority of India (either Joint Secretary, FT & TR-I or Joint Secretary, FT & TR-II depending on the coun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....try with which the bilateral APA is to be negotiated under the Tax Treaty) has to initiate discussions with his/her counterpart in the other country. The officers in the FT & TR-I & II Divisions of the CBDT working with the Competent Authority 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-I or Joint Secretary, FT & TR-II (the two Competent Authorities of India) with the taxpayer on behalf of the CBDT. This Annual Report ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....carries forward the CBDT's unique initiative of the last two years to bring into the public domain various statistical and qualitative aspects of India's APA programme. The idea is to encourage discussion and debate amongst taxpayers, policy makers, economists, etc. on the strengths and weaknesses of the programme. This Annual Report by the CBDT on one of its programmes underlines the importance that the APA programme holds in the Government's endeavour to promote and preserve a non-adversarial tax regime. The third Annual Report on the APA programme highlights the progress made in financial year 2018-19. A total of 52 APAs were entered into during this year. Though the number of APAs entered into has come down, it is still an impressive 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), 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. 3 | M | DATA AND QUALITATIVE ANALYSES A. GENERAL....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ANALYSIS A.1. No. of Applications Filed The total number of applications filed on an annual basis (till 31 March, 2019) can be seen in the table and the graph below. Table A.1 Financial Year (F.Y) Unilateral APA | Bilateral APA Total Applications Applications 2012-13 117 29 146 2013-14 206 26 232 2014-15 192 14 206 2015-16 113 19 132 2016-17 78 23 101 2017-18 115 53 168 2018-19 123 47 170 Total 944 211 1155 Graph A.1 146 117 Applications Filed 232 206 206 192 168 170 132 123 113 115 101 78 53 47 29 26 23 19 14 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 UAPA BAPA Total 4 | -| Though the overwhelming preference for unilateral APAs is clearly seen in the data above, it is equally clearly seen that the filing of bilateral APA applications saw an upward spike in 2017-18 and that trend continues in 2018-19. Bilateral APA applications now constitute almost one-third of the total applications filed. The primary reasons for the increase in bilateral APA applications are the following: • . Both the Indian Competent Authorities have successfully resolved bilateral APAs with several countr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies like Japan, United Kingdom, USA, Australia, Switzerland, Netherlands, etc. Bilateral APAs provide complete relief from double taxation. The US Competent Authority opening up the bilateral APA programme between the two countries in February 2016. India becoming willing to accept bilateral APAs in respect of all treaty partners (even in the absence of Article 9(2) in the relevant treaty). - It is also pertinent to point out that the above graph only depicts the number of unilateral and bilateral applications, as filed originally. The statistics on nature of applications filed - unilateral or bilateral – is dynamic because applicants come up with frequent requests for conversion from unilateral to bilateral. Requests for conversion of bilateral applications to unilateral have been rare. Over the last few years and till 31st March, 2019, 44 unilateral applications filed in different years have been converted to bilateral applications. During the same period, 2 bilateral applications have been converted to unilateral applications. As a result, there has been a net increase of 42 bilateral applications over the original number of applications filed. More detai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls regarding this would be found in subsequent sections. It is important to note that India received the most APA applications across the globe, after USA (203 in 2018), during the period 2018-19. This has been the trend since the beginning of our APA Programme and goes on to indicate two facts - firstly, the popularity of the APA Programme and, secondly, the need for human resources to handle the volume of work. A.2. Status of Applications Filed The status of applications filed in the last 7 years can be seen from the table and graph below. The number of applications filed has gone up again from F.Y 2017-18 due to many applicants coming back to the APA Programme with applications for renewing their earlier APAs. | 5 | The table and graph also reveal the number of cases disposed of otherwise than by signing of an Agreement. The reasons for such disposal of applications include withdrawal of applications by the applicants and merger of multiple applicants with each other. This results in signing of fewer Agreements than the number of applications filed. Table A.2 F.Y (A) No. of Applications Agreements (B) No. of Filed Signed out of (A) (C) No. of Applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations disposed of out of (A) due to other (D) No. of Applications Under Processing out of (A) reasons [(A) - (B+C)] 2012-13 146 92 20 34 2013-14 232 108 40 84 2014-15 206 51 19 136 2015-16 132 15 3 114 2016-17 101 3 0 98 2017-18 168 2 0 166 2018-19 170 0 0 170 Total 1155 271 82 802 Graph A.2 Status of Applications Filed 51 40 20 34 19 15 3 3 0 2 0 0 0 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Number of Applications 136 132 108 114 101 98 ×™×— 146 232 206 168 166 170 170 â– Number of Agreements Signed Number of Applications disposed due to other reasons â– Number of Applications Under Processing It is pertinent to point out here that out of the pending 802 applications, there are about 50 applicants who have not formally withdrawn from the APA 6 |0| Programme but have not been participating in the process actively. For example, they have not furnished documents and responses to basic questions even after a year of issue of questionnaires or query letters. Naturally, such applications have been placed on the back burner and may be processed for closure. A.3 Agreem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents Signed: Year-wise The table and the graph below depict the number of Agreements that have been entered into, year-wise, till 31st March, 2019. Table A.3 Financial Year (F.Y) Unilateral Bilateral Total 2013-14 LO 5 0 LO 5 2014-15 3 1 4 2015-16 53 2 55 2016-17 80 8 88 2017-18 58 9 67 2018-19 41 11 52 Total 240 31 271 Graph A.3 2018-19 11 2017-18 9 2016-17 8 2015-16 2 Agreements Signed 41 52 58 67 665 88 80 55 53<BR> News - Press release - PIB....