What is the meaning of Advance pricing Agreement under Section 92CC and 92CD? State the provision of Advance Pricing Agreement in detail.

Meaning of Advance Pricing Agreement

Advance Pricing Agreement (APA) is an agreement between a taxpayer and the tax authority regarding the transfer pricing method to be applied for transactions between the taxpayer and its associated enterprises. It is a mechanism to avoid transfer pricing disputes and provide certainty to taxpayers on their transfer pricing positions.

As per Section 92CC of the Income Tax Act, 1961, the Central Board of Direct Taxes (CBDT) can enter into an APA with any person for determining the Arm’s Length Price (ALP) or specifying the manner of determination of ALP for the international transaction to be entered into by such person.

As per Section 92CD of the Income Tax Act, 1961, the procedure for entering into an APA is as follows:

1. Application: The taxpayer can make an application to the CBDT for entering into an APA, either unilaterally or bilaterally.
2. Pre-filing consultation: The taxpayer can have a pre-filing consultation with the CBDT to discuss the terms of the APA.
3. Filing of application: The taxpayer can file an application for an APA in Form No. 3CED.
4. Examination of application: The CBDT will examine the application and may seek additional information or documents from the taxpayer.
5. Negotiation: The CBDT will negotiate the terms of the APA with the taxpayer.
6. Signing of APA: Once the terms of the APA are agreed upon, the APA will be signed by the taxpayer and the CBDT.

The provisions of APA are as follows:

1. Validity: The APA is valid for a maximum period of five years.
2. International transactions: The APA applies only to the international transactions specified in the agreement.
3. Review: The APA can be reviewed by the CBDT if there is any change in the facts or circumstances or any misrepresentation or suppression of facts by the taxpayer.
4. Dispute resolution: Any dispute arising out of the APA will be resolved in accordance with the dispute resolution mechanism provided under the Income Tax Act or the relevant tax treaty.
5. Revocation: The APA can be revoked by the CBDT if the taxpayer breaches any of the terms and conditions of the agreement or if there is any misrepresentation or suppression of facts by the taxpayer.

Summary

In summary, an APA is a mechanism for taxpayers to obtain certainty and avoid transfer pricing disputes by entering into an agreement with the tax authority regarding the transfer pricing method to be applied for transactions between the taxpayer and its associated enterprises.

Disclaimer

The content of Computer, Commerce, Reasoning, provided for the educational purpose. This is the study materials for the Commerce & other students. These books, Notes PDF, Article are authorized by own publications, we provide Article/PDF for educational purpose. Any copyright climb please mail to the ‘DeepakPathasala’ official email response as soon as possible.