MNEs think of transfer pricing as the major tax challenge in India. They face numerous audits and court cases on this topic. A new development is that India seems to have embraced the Advanced Pricing Agreement as a tool to discuss and agree on the at arm’s length remuneration upfront. As the name suggests, these agreements allow MNEs to plan their time, cost and efforts in advance. This way, they avoid potential double taxation and other tax penalties.
APA IN INDIA
The Indian Government has successfully concluded over 170 APAs to date, making this a real tax risk management tool for MNEs with activities in India. The APA could be uni-, bi- or multilateral. The average duration of an APA process obviously depends on the complexity and amount of countries involved. However, it seems to be between 26 and 34 months on average. In addition to creating certainty, such an APA also brings the advantage of protection against local transfer price audits. These could have resulted in a potential tax dispute in the first place.
To be able to apply for an APA in India for 2018 and onwards there are some formal conditions, such as a timely application (before 1 April 2018). The APA process itself has three phases: a feasibility study including prefiling (pre-filing is not a compulsory step), the filing and negotiation itself, followed by the implementation of the agreed remuneration. We can assist in all three phases.
If you are interested in this opportunity, please let us know so we can send you a presentation on this topic.