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India signs advance pricing agreement with Japan

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Staff writer ▼ | December 22, 2014
In a step to reduce transfer pricing disputes, the Indian tax department on Friday signed its first bilateral advance pricing agreement (APA) with Japan.
India Japan
Cooperation   The first bilateral deal of its kind
The APA was signed with a Japanese company, the central board of direct taxes said in a statement, adding that APAs will improve the investment climate in the country and attract more Japanese investors to India. An advance pricing agreement is an accord between a taxpayer and the tax department on a transfer pricing procedure for a particular set of transactions.

An APA could be a unilateral agreement between the company and Indian tax authorities or a bilateral agreement involving a foreign country or a multilateral agreement between several nations. But bilateral or multilateral agreements with other countries will be based on tax treaties that India has with them.

So under a bilateral agreement, agreements have to be signed at various levels—between the tax authorities of both the countries and between the tax authorities and the respective company.

Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied.

Transfer pricing has been an area of increasing dispute in India with the most recent assessment of such pricing by the tax department seeing increased claims of more than $9.5 billion.


 

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