Sec. 92CC & 92CD: Advance Pricing Agreement legislation is presently used in developed countries such as United Kingdom and the United States and is now through the Finance Bill of 2012 proposed to be introduced as a part of Indian tax legislation w.e.f 1st July 2012. The provisions relating to APAs have been introduced to provide certainty in the determination of arm‟s length price thereby reducing transfer pricing litigation.
An APA is an agreement between a person and the Central Board of Direct Taxes (CBDT). This Agreement is to determine in advance, in relation to an international transaction, any of the following:
- The arm‟s length price
- Manner in which the arm‟s length price is to be determined
An APA would be limited to a maximum of 5 consecutive financial years. The APA is binding on the following:
- The person in respect of whose transaction the APA has been entered into
- the Commissioner, and the income-tax authorities
The Board can prescribe a scheme specifying the procedure to be followed for entering into an advance pricing agreement.
The introduction of APAs has been a positive step, however as there is no procedure or rules prescribed, it is yet to be determined how effective such measures shall be in attaining its object.
It is interesting to note that even though the transfer pricing regulations have been extended to include within its scope certain domestic transactions, the APAs are only applicable to international transactions.
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