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India has signed its first unilateral roll back Advance Pricing Agreement

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India has signed its first unilateral roll back Advance Pricing Agreement (APA), bringing certainty to tax liability of a US-headquartered multinational company for a nine year period.

This is significant as this agreement between the central board of direct taxes (CBDT) and the taxpayer comes within a period of four months of the introduction of the rollback scheme in India in March 2015.

The Finance Minister Arun Jaitley had in his maiden budget in July last year announced that the facility of “roll back” would be extended under the APA scheme.

Under the rollback facility, the pricing agreed in an APA (advance pricing agreements) for future transactions (maximum for five years) may be applied to transactions for previous four years in specified circumstances.

An APA is an agreement between a taxpayer and the tax authority concerning the transfer pricing method and the rate applicable to the taxpayers’ inter-company transactions, and normally covers multiple years.

Reacting to the latest CBDT move, S.P.Singh, Senior Director, Deloitte in India said that this APA was the first one of its kind.

“With the conclusion of this APA, it will become clear to multinational companies in India that they can achieve certainty around transfer pricing for a nine year period”, Singh told Business Line here on Monday.

Certainty in tax law reduces compliance costs and makes tax regime investment friendly, he said, adding that APAs provide tax certainty and improve investment climate in the country.

“This one will give a boost to the Indian economy. With this agreement, we will see many international companies adopting the APA route to reduce litigation”, Singh said