CBDT’s strategic move to enter 125 advance pricing agreements in FY 24 to ensure fair and transparent taxation

The Central Board of Direct Taxes (CBDT) achieved a significant milestone by concluding a record 125 Advance Pricing Agreements (APAs) with Indian taxpayers during the fiscal year 2023-24. The Finance Ministry’s announcement revealed that among these 125 agreements, 86 are unilateral APAs (UAPAs) and 39 are bilateral APAs (BAPAs). This remarkable achievement marks the highest number of APA agreements reached in any fiscal year since the inception of the APA programme.

The CBDT experienced a significant rise in bilateral APAs, marking a record number for any fiscal year. In comparison to the 95 APAs signed in the previous financial year, the 125 APAs signed in 2023–24 show a notable 31 percent increase. These agreements were established through mutual consensus with India’s treaty partners, including Australia, Canada, Denmark, Japan, Singapore, the UK, and the US.

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The APA Scheme plays a pivotal role as it provides certainty to taxpayers, especially in the realm where transfer pricing exists. By specifying pricing methods and establishing the arm’s length price of international transactions in advance for up to five future years, taxpayers benefit from crucial predictability in their tax responsibilities. Additionally, the opportunity to retroactively apply the APA for the previous four years extends tax certainty for a cumulative period of nine years, providing a foundation of stability and transparency for tax planning purposes.

The signing of bilateral APAs not only enhances tax certainty but also provides taxpayers with protection against possible or real instances of double taxation. This additional level of assurance promotes cross-border transactions and investments, cultivating an environment conducive to the operations of international businesses.

Multinational corporations engaging in numerous cross-border transactions among their group entities derive substantial advantages from the APA mechanism as it offers a structured framework for operating businesses. Alongside this, it also diminishes uncertainties related to tax obligations and promotes streamlined operations.

As India continues to strengthen its APA programme, significant impacts are anticipated. The increased use of Advance Pricing Agreements (APAs) will lead to reduce the disputes related to transfer pricing.
Likewise, a trend towards adherence to regulations is expected to grow as taxpayers increasingly appreciate the advantages of APAs in promoting transparency and mitigating the potential for tax-related conflicts. A stable and predictable tax environment will also promote economic growth in India. The assurance provided by APAs can allure additional multinational enterprises to either establish or expand their operations in India, which ultimately increases the job creation and enhances economic activity.

Thus, CBDT’s achievement of signing a record 125 Advance Pricing Agreements in FY24 highlights India’s dedication to establishing an equitable and transparent tax framework. This milestone is not only is beneficial for taxpayers and the tax authorities but also aligns with India’s broader objective of attracting investments and bolstering sustainable economic growth under PM Modi’s leadership.