CBDT signs two APAs for IT & Banking sectors

The Dollar Business Bureau

The CBDT (Central Board of Direct Taxes) has signed 2 agreements with Indian tax payers with an intention to strengthen the government's commitment for a non-adversarial tax regime. The unilaterally signed advance pricing agreements have a provision that allows the government to “rollback” the agreement.

A release shared by the press Information Bureau suggested that the CBDT entered into these APAs to cover areas pertaining to Information Technology, Banking and Financial sectors.

A pricing agreement can be understood as a written contract between a supplier and a business customer on the pricing of a specific commodity. An Advanced Pricing Agreement considers the volatilities of price, since a quote may expire or is subject to change at any time. Prices also depend upon market factors and tied up with other commodities. An APA in this regard is the binding contract between a taxpayer and a tax authority on an appropriate pricing methodology (TPM) for a set of transactions at issue over a fixed period of time.

The government introduced such agreements early in 2014 with the broad outlook of bringing about transparency in pricing provisions. It was also implemented to provide certainty to taxpayers and in determining the length-price of International transactions in advance for a maximum of five future years.

A taxpayer in such instances can leverage from the option of "roll-back of four preceding years". The CBDT believes that as such many taxpayers have evinced interest in the scheme. Over 800 applications from both multi-national and uni-lateral enterprises have been filed in 5 years.