Backlog baggage: Staff shortage delays advance pricing agreement process

Presently, there are five APA teams in the country with two teams in Delhi and one team each in Mumbai, Bengaluru and Gurgaon

A staff shortage at the Central Board of Direct Taxes (CBDT) is leading to a growing backlog of advance pricing agreement (APA) cases, according to a CBDT source. “Currently, there are only 19 officers deputed for the execution of APAs. The government should at least double the number,” the official said. 

An APA is a mechanism that allows taxpayers and tax authorities to agree on a transfer-pricing method to determine prices for transactions between related companies in different countries. 

Introduced in 2012 through the Finance Act, the purpose of APAs is to provide tax certainty and reduce litigation. Effective from July 1, 2012, APAs allow CBDT to enter into agreements with taxpayers for up to five years. A total of 858 APAs were waiting to be processed as of March 31, 2024, according to CBDT’s annual report on APAs. In 2023-24 (FY24), 125 APAs were signed by CBDT. 

There are five APA teams in the country at present — two in Delhi, and one each in Mumbai, Bengaluru and Gurugram. An APA team is headed by an income tax commissioner, an additional commissioner, and two deputy tax commissioners. “Even the income tax rules mandate that an APA team should have an economist and (a) statistician, but they have never been made part of these teams,” according to the CBDT source. 

An email query sent to the CBDT spokesperson remained unanswered until the time of going to press. 

According to the Income Tax Rules, 1962, an APA team should also include experts in economics, statistics, law or any other field as may be nominated by the director general of income tax (international taxation). 

The official further said, “Currently, one officer is handling 120-130 APA applications. It could take six to eight months to process one application. With more and more applications received each year, one can imagine the pressure on officers handling these cases.” Executing an APA is a complex task requiring deep technical expertise, meticulous analysis, and prolonged negotiations, CBDT officials say. 

 And the shortage of officers along with frequent transfers every one or two years adds to the challenge. 

“Just as an officer develops a thorough understanding of a case, he is posted out, leaving the new officer to start from scratch. This lack of continuity slows down negotiations, increases the burden on an already stretched workforce, and makes it harder to deliver timely and effective agreements,” another CBDT official said.

 

Backlog baggage  

 

*  As of March 31, 2024, 858 APAs are yet to be processed, according to CBDT’s annual report

 

*  In FY24, 125 APAs were signed by the CBDT

  *  At present, there are five APA teams in the country