Advance Pricing Agreement (APA): An Overview by CA. Sahil Dhingra

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Advance Pricing Agreement (APA): An Overview by CA. Sahil Dhingra

 

Abut By Author

CA. Sahil Dhingra

 

 


Advance Pricing Agreement (APA)

 

Definition of APA:

  • An APA is an agreement between taxpayer/applicant and the CBDT which determines the ALP of future inter-company transactions.
  • APA is valid for maximum period of five years and also extends to previous four years under roll back provisions.
  • Taxpayer/Applicant mutually agree on the transfer pricing methodology to be applied and its application, in relation to the taxpayer’s international transactions for certain future period of time.
  • The Arm Length Price with respect to that international transaction, for the period specified in the APA, will be determined only in accordance with the APA, after the APA has been entered with respect to an international transaction.
  • APA shall binding on the person as well as the CIT (and his subordinate income-tax authorities) having jurisdiction over such person and such transaction.

Types of APA:

  • Unilaterlal APA
  • Bilateral APA
  • Multilateral APA

The taxpayer/applicant at the time of making an APA application, has choice to opt for any of the above mentioned types of APA’s.

Unilateral APA:

  • Unilateral APA is an agreement between CBDT and the taxpayer/applicant, and does not involve any corresponding agreement with another AEs.
  • In a unilateral APA, the taxpayer/applicant does not wish to involve competent authority of any other country, thereby the risk of double taxation is not mitigated in a unilateral APA.
  • In Unilateral APA application to be furnished to Principal Chief Commissioner of Income Tax (International Taxation).

Bilateral APA:

 

  • As per Rule 10F(C) aAgreement between the CBDT and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authority in the other country regarding the most appropriate transfer pricing method or arm’s length price.
  • In a bilateral APA, the taxpayer/applicant is required to make an application with the competent authority of India and simultaneously the taxpayer/applicant or its AE should apply to the competent authority of the other country.
  • The two competent authorities are required to reach a consensus through negotiation process.
  • The arrangement is required to be accepted by the applicant before a bilateral APA Entered into.

Multi-lateral APA:

  • As per Rule 10F(h) aAgreement between the CBDT and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authority in the other countries regarding the most appropriate transfer pricing method or arm’s length price.
  • In a multi-lateral APA more than two jurisdictions are involved, thetaxpayer/applicant is required to make an application with the competent authority of India and simultaneously the taxpayer/applicant or its AE should apply to the competent authority of the other countries.
  • Indian competent authority must reach an agreementthrough negotiations with competent authorities of other countries, before the agreement could be offered to the taxpayer/applicant.
  • The agreement reached in the negotiations is required to be accepted by the taxpayer/applicant before a multi-lateral APA entered into.

Note:Request for bilateral and multilateral APA can be accepted by the Indian Competent authority where:

  • A Tax Treaty exist between India and other contracting state containing an article on ‘Mutual Agreement Procedure’ and
  • The Corresponding APA program exists in the other country.

Section 92CC:

  • The Board (CBDT), with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the—
  • Arm’s length price or specifying the manner in which the arm’s length price is to be determined, in relation to an international transaction to be entered into by that person;
  • Income referred to in clause (i) of sub-section (1) of section 9, or specifying the manner in which said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident.

 

Crux of Subsection (1):

  • APA can cover ALP to be followed for International transaction with AE (Eg $100 will be ALP for sale to AE for APA period), or
  • If ALP not decided in APA then method to calculate ALP can be determined in APA. (TNMM, CUP, RPM, CPM, PSM or any other method)
  • APA can also be entered for the PE Profits which are attributable to the operations carried out in India.
  • The manner of determination of the arm’s length price referred to in clause (a) or the income referred to in clause (b) of sub-section (1), may include the methods referred to in sub-section (1) of section 92C or the methods provided by rules made under this Act, respectively, with such adjustments or variations, as may be necessary or expedient so to do.

Crux of Subsection (2):

For the Calculation of ALP refer methods given in the section 92C(1)

  • Notwithstanding anything contained in section 92C or section 92CA or the methods provided by rules made under this Act, the arm’s length price of any international transaction or the income referred to in clause (b) of sub-section (1), in respect of which the advance pricing agreement has been entered into, shall be determined in accordance with the advance pricing agreement so entered.

Crux of Subsection (3):

APA will prevail over section 92C or section 92CA

  • The agreement referred to in sub-section (1) shall be valid for such period not exceeding five consecutive previous years as may be specified in the agreement.

Crux of Subsection (4):

 

APA valid for maximum five years and APA can be entered for less than five years.

  • The advance pricing agreement entered into shall be binding—

 (a) on the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into; and

  • on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction.

Crux of subsection (5):

APA shall binding on person as well as on PCIT or CIT and subordinate Income Tax Authorities having jurisdiction over such person and such transaction.

  • The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered.

Crux of Sub-section (6):

 

There is no binding effect of APA if there is change in law or facts.

  • The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.

Crux of Sub-section (7):

 

IF APA has been obtained by fraud or misrepresentation of facts then APA is void ab initio from the beginning.

  • Upon declaring the agreement void ab initio,—

(a) All the provisions of the Act shall apply to the person as if such agreement had never been entered into; and

(b) Notwithstanding anything contained in the Act, for the purpose of computing any period of limitation under this Act, the period beginning with the date of such agreement and ending on the date of order under sub-section (7) shall be excluded:

Provided that where immediately after the exclusion of the aforesaid period, the period of limitation, referred to in any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.

Crux of Sub-section (8):

 

  • Where APA declared void ab initio then normal provisions of Income Tax act applies by assuming that such agreement have never been entered.
  • While calculation the period of limitation in any provisions of Income Tax Act then the period of beginning with date of such agreement and ending on date of order mentioned under sub-section (7) shall be excluded.

If the period of limitation referred to in any provisions of this Act is less than sixty days after excluding the above mentioned period the such period of limitation shall be extended to 60 days.

  • The Board may, for the purposes of this section, prescribe a scheme specifying therein the manner, form, procedure and any other matter generally in respect of the advance pricing agreement.

Crux of Sub-section (9):

 

Scheme is prescribed through Notification No. 06/2012 dated 30.08.2012 and Notification No. 23/2015 dated 14.03.2015

 

(9A) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the—

 (a)arm’s length price or specify the manner in which the arm’s length price shall be determined in relation to the international transaction entered into by the person;

 (b)income referred to in clause (i) of sub-section (1) of section 9, or specifying the manner in which the said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident,

During any period not exceeding four previous years preceding the first of the previous years referred to in sub-section (4), and the arm’s length price of such international transaction or the income of such person shall be determined in accordance with the said agreement.

Crux of Sub-section (9A)

For Conditions, procedures and manner refer Notification No. 23/2015 dated 14.03.2015.

  • Where an application is made by a person for entering into an agreement referred to in sub-section (1), the proceeding shall be deemed to be pending in the case of the person for the purposes of the Act.

 

  • Link for Notification No. 06/2012 dated 30.08.2012

https://www.incometaxindia.gov.in/communications/notification/920110000000000180.pdf

 

  • Link for Notification No. 23/2015 dated 14.03.2015

https://www.incometaxindia.gov.in/communications/notification/notification23_2015.pdf

 

  • Link for Application of Pre-filing meeting (Form 3CEC)

https://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007771.pdf

  • Link for APA Application (Form 3CED)

https://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007772.pdf

  • Link for Application for rollback of APA (Form 3CEDA)

https://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/itr62Form3ceda.pdf

  • Link for Application for withdrawl of APA Request (Form 3CEE)

https://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007773.pdf

 

  • Link for Annual Compliance Report on APA (Form 3CEF)

https://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007774.pdf

Advance Pricing Agreement Scheme

Rule 10F:Meaning of expressions used in matters in respect of advance pricing agreement.

 

For the purposes of this rule and rules 10G to 10T,—

  • Agreement means an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in sub-section (1) of section 92CC of the Act;
  • Application means an application for advance pricing agreement made under rule 10-I;

(ba) Applicant means a person who has made an application;

  • Bilateral agreement means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authority in the other country regarding the most appropriate transfer pricing method or the arms‘ length price;
  • Competent authority in India means an officer authorised by the Central Government for the purpose of discharging the functions as such for matters in respect of any agreement entered into under section 90 or 90A of the Act;
  • Covered transaction means the international transaction or transactions for which agreement has been entered into;
  • Critical assumptions means the factors and assumptions that are so critical and significant that neither party entering into an agreement will continue to be bound by the agreement, if any of the factors or assumptions is changed;
  • Most appropriate transfer pricing method means any of the transfer pricing method, referred to in sub-section (1) of section 92C of the Act, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors prescribed by the Board under rules 10B and 10C;
  • Multilateral agreement means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authoritiesin the other countries regarding the most appropriate transfer pricing method or the arms’ length price;

(ha) Rollback year means any previous year, falling within the period not exceeding four previous years, preceding the first of the previous years referred to in sub-section (4) of section 92CC;]

  • “tax treatymeans an agreement under section 90, or section 90A of the Act for the avoidance of double taxation;
  • Team means advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Director General of Income-tax (International Taxation);
  • Unilateral agreement means an agreement between the Board and the applicant which is neither a bilateral nor multilateral agreement.

Rule 10G:Persons eligible to apply

Any person who—

  • has undertaken an international transaction; or

(b) is contemplating(thinking) to undertake an international transaction,

shall be eligible to enter into an agreement under these rules.

Rule 10H: Pre- Filing Consultation

  • Anyperson proposing to enter into an agreement under these rules may, by an application in writing, make a request for a pre-filing consultation.
  • The request for pre-filing consultation shall be made in Form No. 3CEC to the Director General of Income-tax (International Taxation).
  • On receipt of the request in Form No. 3CEC, the team shall hold pre-filing consultation with the person referred to in rule 10G.
  • The competent authority in India or his representative shall be associated in pre-filing consultation involving bilateral or multilateral agreement.
  • The pre-filing consultation shall, among other things,—
  • Determine the scope of the agreement;
  • Identify transfer pricing issues
  • Determine the suitability of international transaction for the agreement;
  • Discuss broad terms of the agreement.
  • The pre-filing consultation shall—

 

  • Not bind the Board or the person to enter into an agreement or initiate the agreement process;
  • Not be deemed to mean that the person has applied for entering into an agreement.

Rule 10-I: Application for APA

  • Any person, referred to in rule 10Gmay, if desires to enter into an agreement furnish an application in Form No. 3CED along with the requisite fee.
  • The application shall be furnished to Director General of Income-tax (International Taxation) in case of unilateral agreement and to the competent authority in India in case of bilateral or multilateral agreement.
  • Application in Form No. 3CED may be filed by the person referred to in rule 10G at any time—
  • Before the first day of the previous year relevant to the first assessment year for which the application is made, in respect of transactions which are of a continuing nature from dealings that are already occurring; or
  • Before undertaking the transaction in respect of remaining transactions.

Crux of Sub-rule (3)(i)

Eg: If the APA application seeks to cover 5 years starting from AY 2016-17 to AY 2020-21, then the application must be filed before 01/04/2015.

Crux of Sub-rule (3)(i)

Eg: if the applicant is going to enter into a new transaction for the first time (i.e these transactions are not from dealings that are of a continuous nature) starting 01/12/2015 and the APA application should be made before 01/12/2015& the applicant has choice to include AY 2016-17 as the first assessment year in the APA Application.

  • Every application in Form No. 3CED shall be accompanied by the proof of payment of fees as specified in sub-rule (5).
  • The fees payable shall be in accordance with following table based on the amount of international transaction entered into or proposed to be undertaken in respect of which the agreement is proposed:
Amount of international transaction entered into or proposed to be undertaken in respect of which agreement is proposed during the proposed period of agreement. Fee
Amount not exceeding Rs. 100 crores 10 lacs
Amount not exceeding Rs. 200 crores 15 lacs
Amount exceeding Rs. 200 crores 20 lacs

Crux of sub-rule (5):

  • The APA is related to the future transactions therefore to calculate the amount of fee the applicant has to consider the projections or estimated value of the international transactions.
  • After 2 years IT department will check the actual status of international transactions and intimate applicant to pay additional fees, if required.

 

Rule 10J: Withdrawal of application for agreement.

 

  • The applicant may withdraw the application for agreement at any time before the finalisation of the terms of the agreement.
  • The application for withdrawal shall be in Form No. 3CEE.
  • The fee paid shall not be refunded on withdrawal of application by the applicant.

Rule 10K: Preliminary processing of Application.

  • Every application filed in Form No. 3CED shall be complete in all respects and accompanied by requisite documents.
  • If any Defect is noticed in the application in Form No. 3CED or

If any relevant document is not attached thereto or

The application is not in accordance with understanding reached in anypre-filing consultation referred to in rule 10H,

The Director General of Income-tax (International Taxation) (for unilateral agreement) and competent authority in India (for bilateral or multilateral agreement) shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application.

  • The Applicant shall remove the deficiency or modify the application within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf, may be extended, so however, that the total period of removal of deficiency or modification does not exceed thirty days.

 

  • The Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, on being satisfied, may pass an order providing that application shall not be allowed to be proceeded with if the application is defective and defect is not removed by applicant in accordance with sub-rule (3).

 

  • No order under sub-rule (4) shall be passed without providing an opportunity of being heard to the applicant and if an application is not allowed to be proceeded with, the fee paid by the applicant shall be refunded.

 

Rule 10L:Procedure

  • If the application referred to in rule 10K has been allowed to be proceeded with, the team or the competent authority in India or his representative shall process the same in consultation and discussion with the applicant in accordance with provisions of this rule.
  • For the purpose of sub-rule (1), it shall be competent for the team or the competent authority in India or its representative to—
  • Hold meetings with the applicant on such time and date as it deem fit;
  • Call for additional document or information or material from the applicant;
  • Visit the applicant’s business premises; or
  • Make such inquiries as it deems fit in the circumstances of the case.
  • For the purpose of sub-rule (1), the applicant may, if he considers it necessary, provide further document and information for consideration of the team or the competent authority in India or his representative.
  • For bilateral or multilateral agreement, the competent authority shall forward the application to Director General of Income-tax (International Taxation) who shall assign it to one of the teams.
  • The team, to whom the application has been assigned under sub-rule (4), shall carry out the enquiry and prepare a draft report which shall be forwarded by the Director General of Income-tax (International Taxation) to the competent authority in India.
  • If the applicant makes a request for bilateral or multilateral agreement in its application, the competent authority in India shall in addition to the procedure provided in this rule invoke the procedure provided in rule 44GA.
  • The Director General of Income-tax (International Taxation) (for unilateral agreement) or

The competent authority in India (for bilateral or multilateral agreement) and

The applicant shall prepare a proposed mutually agreed draft agreement enumerating the result of the process referred to in sub-rule (1) including the effect of the arrangement referred to in sub-rule (5) of rule 44GA which has been accepted by the applicant in accordance with sub-rule (8) of the said rule.

  • The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.
  • Once an agreement has been entered into the Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, shall cause a copy of the agreement to be sent to the Commissioner of Income-tax having jurisdiction over the assessee.

Rule 10M: Terms of Agreement

  • An agreement may among other things, include—
  • The international transactions covered by the agreement;
  • The agreed transfer pricing methodology, if any;
  • Determination of arm’s length price, if any;
  • Definition of any relevant term to be used in item (ii) or (iii);
  • Critical assumptions;

(va)     Rollback provision referred to in rule 10MA;

  • The conditions if any other than provided in the Act or these rules.
  • The agreement shall not be binding on the Board or the assessee if there is a change in any of critical assumptions or failure to meet conditions subject to which the agreement has been entered into.
  • The binding effect of agreement shall cease only if any party has given due notice of the concerned other party or parties.
  • In case there is a change in any of the critical assumptions or failure to meet the conditions subject to which the agreement has been entered into, the agreement can be revised or cancelled, as the case may be.
  • The assessee which has entered into an agreement shall give a notice in writing of such change in any of the critical assumptions or failure to meet conditions to the Director General of Income-tax (International Taxation) as soon as it is practicable to do so.
  • The Board shall give a notice in writing of such change in critical assumptions or failure to meet conditions to the assessee, as soon as it comes to the knowledge of the Board.
  • The revision or the cancellation of the agreement shall be in accordance with rules 10Q and 10R respectively.

Rule 10MA: Roll back of Agreement

In order to reduce pending as well as the future litigation in respect of the transfer pricing matters.

  • Subject to the provisions of this rule, the agreement may provide for determining the arm’s length price or specify the manner in which arm’s length price shall be determined in relation to the international transaction entered into by the person during the rollback year (hereinafter referred to as “rollback provision”).
  • The agreement shall contain rollback provision in respect of an international transaction subject to the following, namely:—
  • The international transaction is same as the international transaction to which the agreement (other than the rollback provision) applies;
  • The Return of Income for the relevant rollback year has been or is furnished by the applicant before the due date specified in Explanation 2 to sub-section (1) of section 139;
  • The report in respect of the international transaction had been furnished in accordance with section 92E;
  • The applicability of rollback provision, in respect of an international transaction, has been requested by the applicant for all the rollback years in which the said international transaction has been undertaken by the applicant; and
  • The applicant has made an Application seeking rollback in Form 3CEDA in accordance with sub-rule (5);

Crux of Sub-rule (2):

  • Roll back year means any previous year falling within the period not exceeding four previous years preceeding the first year of applicability of APA, in respect of International transaction to be undertaken.
  • Rollback provisions can be applied for those year only in year which return of Income and TP report both filed.
  • International transactions undertaken in roll back years should be ofsame nature and undertaken with same AE as proposed to be undertaken in future years in APA.
  • Applicant has to apply for all the preceeding four years under roll back if the nature of international transactions should be of same nature and with same AE in all the four years. However, there is exception for all four years if international transaction not exist or there is some disqualification (Eg: TP Report or ROI Not filed) due to rollback conditions.
  • Link for Circular No. 10/2015 and refer Question No. 4

https://www.incometaxindia.gov.in/communications/circular/circular_no_10_2015.pdf

  • Notwithstanding anything contained in sub-rule (2), rollback provision shall not be provided in respect of an international transaction for a rollback year, if,—
  • The determination of arm’s length price of the said international transaction for the said year has been subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of such appeal at any time before signing of the agreement; or
  • The application of rollback provision has the effect of reducing the total income or increasing the loss, as the case may be, of the applicant as declared in the return of income of the said year.

Crux of Sub-rule (3):

  • Here “said international transactions” means the transactions which is subject matter of APA.
  • Here “said year” means one of the roll back years.
  • Roll back provisions not applicable if ITAT order passed before the signing of APA.
  • Roll back provisions not applicable for that year in which the loss is increased or total income reduced as compared to shown in the Return of Income
  • Link for Circular No. 10/2015 and refer Question No. 5

https://www.incometaxindia.gov.in/communications/circular/circular_no_10_2015.pdf

  • Where the rollback provision specifies the manner in which arm’s length price shall be determined in relation to an international transaction undertaken in any rollback year then such manner shall be the same as the manner which has been agreed to be provided for determination of arm’s length price of the same international transaction to be undertaken in any previous year to which the agreement applies, not being a rollback year.

Crux of Sub-rule(4)

  • Manner of determination of ALP should be same but ALP can be different for different years.
  • Link for Circular No. 10/2015 and refer Question No. 8

https://www.incometaxindia.gov.in/communications/circular/circular_no_10_2015.pdf

  • The applicant may, if he desires to enter into an agreement with rollback provision, furnish along with the application, the request for the same in Form No. 3 CEDA with proof of payment of an additional fee of five lakh rupees.

Rule 10N: Amendment to application

  • An applicant may request in writing for an amendment to an application at any stage, before the finalisation of the terms of the agreement.

 

  • The Director General of Income-tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) may, allow the amendment to the application, if such an amendment does not have effect of altering the nature of the application as originally filed.

 

  • The amendment shall be given effect only if it is accompanied by the additional fee, if any, necessitated by such amendment in accordance with fee as provided in rule 10-I.

 

Rule 10-O: Furnishing of Annual Compliance Report

  • The assessee shall furnish an annual compliance report to Director General of Income-tax (International Taxation) for each year covered in the agreement.

 

  • The annual compliance report shall be in Form 3CEF.

 

  • The annual compliance report shall be furnished in quadruplicate (four), for each of the years covered in the agreement, within thirty days of the due date of filing the income-tax return for that year, or within ninety days of entering into an agreement, whichever is later.

 

  • The Director General of Income-tax (International Taxation) shall send

 

  • One copy of annual compliance report to the competent authority in India,
  • One copy to the Commissioner of Income-tax who has the jurisdiction over the income-tax assessment of the assessee and
  • One copy to the Transfer Pricing Officer having the jurisdiction over the assesse.

Rule 10P: Compliance Audit of APA

The Transfer Pricing Officer having the jurisdiction over the assessee shall carry out the compliance audit of the agreement for each of the year covered in the agreement.

  • For the purposes of sub-rule (1), the Transfer Pricing Officer may require—
  • The assessee to substantiate compliance with the terms of the agreement, including satisfaction of the critical assumptions, correctness of the supporting data or information and consistency of the application of the transfer pricing method;
  • The assessee to submit any information, or document, to establish that the terms of the agreement has been complied with.
  • The Transfer Pricing Officer shall submit the compliance audit report, for each year covered in the agreement,
  • To the Director General of Income-tax (International Taxation) in case of unilateral agreement and
  • To the competent authority in India, in case of bilateral or multilateral agreement,

mentioning therein his findings as regards compliance by the assessee with terms of the agreement.

  • The Director General of Income-tax (International Taxation) shall forward the report to the Board in a case where there is finding of failure on part of assessee to comply with terms of agreement and cancellation of the agreement is required.
  • The Compliance audit report shall be furnished by the Transfer Pricing Officer within six months from the end of the month in which the Annual Compliance Report referred to in rule 10-O is received by the Transfer Pricing Officer.
  • The regular audit of the covered transactions shall not be undertaken by the Transfer Pricing Officer if an agreement has been entered into under rule 10L except where the agreement has been cancelled under rule 10R.

Rule 10Q: Revision of Agreement

  • An agreement, subsequent to it having been entered into, may be revised by the Board, if,—
  • There is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into;
  • There is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non-binding ; or
  • There is a request from competent authority in the other country requesting revision of agreement, in case of bilateral or multilateral agreement.
  • An agreement may be revised by the Board
  • Either suomotu or
  • On request of the assessee or
  • On request of the competent authority in India or the Director General of Income-tax (International Taxation).
  • When the agreement is proposed to be revised on the request of the assessee, the agreement shall not be revised unless an opportunity of being heard has been provided to the assessee and the assessee is in agreement with the proposed revision.
  • In case the assessee is not in agreement with the proposed revision the agreement may be cancelled in accordance with rule 10R.
  • In case the Board is not in agreement with the request of the assessee for revision of the agreement, the Board shall reject the request in writing giving reason for such rejection.
  • For the purpose of arriving at the agreement for the proposed revision, the procedure provided in rule 10L may be followed so far as they apply.
  • The revised agreement shall include the date till which the original agreement is to apply and the date from which the revised agreement is to apply.

Rule 10R: Cancellation of APA

  • An agreement shall be cancelled by the Board for any of the following reasons:
  • The compliance audit referred to in rule 10P has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement;
  • The assessee has failed to file the annual compliance report in time (rule 10O);
  • The annual compliance report furnished by the assessee contains material errors; or
  • The agreement is to be cancelled under sub-rule (4) of rule 10Q or sub-rule (7) of rule 10RA.
  • The Board shall give an opportunity of being heard to the assessee, before proceeding to cancel an application.
  • The competent authority in India shall
  • communicate with the competent authority in the other country or countries and
  • Provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.
  • The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation and for non-acceptance of assessee’s submission, if any.
  • The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.
  • The order under the Act, declaring the agreement as void ab initio, on account of fraud or misrepresentation of facts, shall be in writing and shall provide reason for such declaration and for non-acceptance of assessee’s submission, if any.
  • The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the assessee.

Rule 10RA: Procedure for giving effect to rollback provisions of an agreement

 

  • The effect to the rollback provisions of an agreement shall be given in accordance with this rule.
  • The applicant shall furnish modified return of income referred to in section 92CD in respect of a rollback year to which the agreement applies along with the proof of payment of any additional tax arising as a consequence of and computed in accordance with the rollback provision.

Crux of Sub-rule(2)

Example: If the original return of Income filed by assessee showing Income of Rs 1000 and paid tax thereon of Rs 100 and due to the roll back provisions income was Rs 1500 and tax thereon Rs 150 then the return modified by showing Income of Rs 1500 and proof of payment of Rs 50 (i.e.150-100) shall furnished by the assessee as per section 92CD.

 

  • The modified return referred to in sub-rule(2) shall be furnished along with the modified return to be furnished in respect of first of the previous years for which the agreement has been requested for in the application.

 

Crux of Sub-rule(3):

Example: On 29/12/2018 I Co. concluded an APA with rollback provisions for AY 2018-19. Determine the time limit for filling modified returns for AY 2018-19 (First APA Year) 2017-18 (Rollback Year) 2016-17 (Rollback Year) 2015-16 (Rollback year) and 2014-15 (Rollback Year).

Solution: The modified return shall furnished within 3 months from the end of the month in which APA was entered. Thus, modified return of AY 2018-19 and four roll back years shall be furnished till 31/03/2019.

  • If any appeal filed by the applicant is pending before
  • The Commissioner (Appeals),
  • Appellate Tribunal or
  • The High Court

for a rollback year, on the issue which is the subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the applicant before furnishing the modified return for the said year.

  • If any appeal filed by the Assessing Officer or the Principal Commissioner or Commissioner is pending before the Appellate Tribunal or the High Court for a rollback year, on the issue which is subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the Assessing Officer or the Principal Commissioner or the Commissioner, as the case may be, within three months of filing of modified return by the applicant.

 

Crux of Sub-rule (5)

If appeal filed by AO or PCIT or CIT before ITAT or HC for a roll back year

shall be withdrawn within three months from date of filing of modified return.

 

  • The applicant, the Assessing Officer or the Principal Commissioner or the Commissioner, shall inform the Dispute Resolution Panel or the Commissioner (Appeals) or the Appellate Tribunal or the High Court, as the case may be, the fact of an agreement containing rollback provision having been entered into along with a copy of the same as soon as it is practicable to do so.

Crux of Sub-rule (6)

The Applicant/AO/PCIT/CIT/ shall inform DRP/CIT(A)/ITAT/HC facts of APA containing roll back provisions along with copy of the same as soon as practicable.

  • In case effect cannot be given to the rollback provision of an agreement in accordance with this rule, for any rollback year to which it applies, on account of failure on the part of applicant, the agreement shall be cancelled. (Refer Rule 10R)

Rule 10S: Renewing an Agreement

Request for renewal of an agreement may be made as a new application for agreement, using the same procedure as outlined in these rules except pre-filing consultation as referred to in rule 10H.

Rule 10T: Miscellaneous

  • Mere filing of an application for an agreement under these rules shall not prevent the operation of Chapter X of the Act for determination of arms’ length price under that Chapter till the agreement is entered into.

Crux of Sub-rule(1):

Till the date on which APA entered the normal provisions of Transfer pricing applies.

  • The negotiation between the competent authority in India and the competent authority in the other country or countries, in case of bilateral or multilateral agreement, shall be carried out in accordance with the provisions of the tax treaty between India and the other country or countries.

Crux of Sub-rule (2):

For the bilateral & multilateral APA the negotiation between competent authority in India & competent authority in other country/countries should be as per the DTAA between India and other country/countries. 

Rule 44GA: Procedure for Bilateral & Multilateral APA

  • Where a person has made request for a bilateral or multilateral advance pricing agreement in an application filed in Form No. 3CED in accordance with rule 10-I, the request shall be dealt with subject to provisions of this rule.
  • The process for bilateral or multilateral advance pricing agreement shall not be initiated unless the associated enterprise situated outside India has initiated process of advance pricing agreement with the competent authority in the other country.
  • The competent authority in India shall, on intimation of request of the applicant for a bilateral or multilateral agreement, consult and ascertain willingness of the competent authority in other country or countries, as the case may be, for initiation of negotiation for this purpose.
  • In case of willingness of the competent authority in other country or countries, as the case may be, the competent authority in India shall enter into negotiation in this behalf and endeavour to reach a set of terms which are acceptable to the competent authority in India and the competent authority in the other country or countries, as the case may be.
  • In case of an agreement after consultation, the competent authority in India shall formalise a mutual agreement procedure arrangement with the competent authority in other country or countries, as the case may be, and intimate the same to the applicant.
  • In case of failure to reach agreement on such terms as are mutually acceptable to parties mentioned in sub-rule (4), the applicant shall be informed of the failure to reach an agreement with the competent authority in other country or countries.
  • The applicant shall not be entitled to be part of discussion between competent authority in India and the competent authority in the other country or countries, as the case may be;

However the applicant can communicate or meet the competent authority in India for the purpose of entering into an advance pricing agreement.

 

  • The applicant shall convey acceptance or otherwise of the agreement within thirty days of it being communicated.
  • The applicant, in case the agreement is not acceptable may at its option continue with process of entering into an advance pricing agreement without benefit of mutual agreement process or withdraw application in accordance with rule 10J.

Crux of Sub-rule(9).

If No bilateral or multilateral APA entered then applicant can withdraw the application as per rule 10J or enter unilateral APA.

Section 92CD:

  • Notwithstanding anything to the contrary contained in section 139, where any person has entered into an agreement and prior to the date of entering into the agreement, any return of income has been furnished under the provisions of section 139 for any assessment year relevant to a previous year to which such agreement applies, such person shall furnish, within a period of three months from the end of the month in which the said agreement was entered into, a modified return in accordance with and limited to the agreement.

Crux of Sub-section(1)

 

When an assessee filed return of Income  under section 139 for any AY prior to the date of agreement then such person shall file the modified return under section 92CD within three months from the end of the month in which agreement was entered.

 

  • Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139.

Crux of Sub-section (2)

When modified return return filed under section 92CD then all the provisions of Act apply by assuming that modified return is furnished under section 139.

  • If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), 54[pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, as the case may be,] having regard to and in accordance with the agreement.

Crux of Sub-section (3)

When assessment order or reassessment order passed before the expiry of period allowed for filing modified return and afterwards assessee filed modified return within the time allowed under subsection (1) then AO should modified the already passed order accordingly.

(4)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 modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished.

 

Crux of Sub-section (4)

When assessment order or reassessment order are pending on the date of filing of modified return then AO shall complete the assessment or reassessment proceeding after considering the modified return.

(5)Notwithstanding anything contained in section 153 or section 153B or section 144C,—

  • The order under sub-section (3) shall be passed within a period of one year from the end of the financial year in which the modified return under sub-section (1) is furnished;

 

  • The period of limitation as provided in section 153 or section 153B or section 144C for completion of pending assessment or reassessment proceedings referred to in sub-section (4) shall be extended by a period of twelve months.

Crux of Sub-section (5):

  • If order already passed for assessment or reassessment then new modified order should be passed within 12 months from the end of financial year in which modified return filed.

 

  • If order not already passed for assessment or reassessment then the period of limitation extended by the twelve months.

(6)For the purposes of this section,—

         (i) “Agreement” means an agreement referred to in sub-section (1) of section 92CC;

(ii) The assessment or reassessment proceedings for an assessment year shall be deemed to have been completed where—

  • An assessment or reassessment order has been passed; or

 

  • No notice has been issued under sub-section (2) of section 143 till the expiry of the limitation period provided under the said section.

 

 

 

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