Advance Pricing Agreement (APA) [Secs. 92CC and 92CD]

1. Advance Pricing Agreement is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. The APA offers better assurance on transfer pricing methods and are conducive in providing certainty and unanimity of approach.
2. Section 92CC empowers the Board (with the approval of the Central Government) to enter into an advance pricing agreement with any person to determine :

a) arm’s length price

b) income referred to in section 9(1)(i) as is reasonably attributable to the operations carried out in India by (or on behalf of) a non-resident.

3. Such APA shall include determination of the arm’s length price or specify the manner in which arm’s length price shall be determined.

4. The manner of determination of arm’s length price in such cases shall be any method including those already provided in section 92C(1)

5. The arm’s length price of any international transaction, which is covered under such APA, shall be determined in accordance with the APA so entered into.

6. The APA shall be valid for such previous years as are specified in the agreement which in no case shall exceed five consecutive previous years.

7. The APA may, subject to such prescribed conditions, procedure and manner, provide for determining the arm’s length price or for specifying the manner in which arm’s length price is to be determined in relation to an international transaction entered into by a person during any period not exceeding 4 previous years preceding the first of the previous years for which the advance pricing agreement applies in respect of the international transaction to be undertaken in future.

8. The APA shall be binding only on the person and the Commissioner (including income-tax authorities subordinate to him) in respect of the transaction in relation to which the agreement has been entered into.

9. The Board is empowered to declare, with the approval of Central Government, any such agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.

10. The person entering into such APA shall necessarily have to furnish a modified return within a period of 3 months from the end of the month in which the said APA was entered into in respect of the return of income already filed for a previous year to which the APA applies.

11. Where the assessment or reassessment proceedings for an assessment year relevant to the previous year to which the agreement applies are pending on the date of filing of a modified return, the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement.