The government has concluded 11 agreements to tax multi-national companies via the transfer-pricing mode. Of these, one advance pricing agreement (APA) has a 'rollback provision', which means those relating to previous years.
The government has signed 22 APAs so far in the current financial year and 30 more are expected to be inked in FY16, providing a climate of certainty and non-adversarial tax regime to foreign companies.
The APAs were signed with companies in sectors ranging from investment advisory, contract research & development, and shipping services.
The conclusion of APAs will facilitate the clearance of the large backlog of around 550 applications with the authorities, and ensure the lowering of tax litigations in the country.
Agreements signed on Tuesday were unilateral APAs, involving only the taxpayer and the tax authority. Another 10-15 agreements are expected to be signed by December.
The concluded APAs included companies based out of France, the US and the UK, among others. According to sources, most of them are service providers. The APA relating to shipping support services has been finalised at margins of 17-18 per cent and the investment advisory ones at margins close to 21 per cent.
An APA is essentially an ahead-of-time agreement between a taxpayer and a taxing authority on an appropriate transfer-pricing methodology for some set of transactions over a fixed period of time.
Aimed to reduce transfer-pricing litigations in the country, finance minister Arun Jaitley had announced the roll-back provision in the first Budget of the Bharatiya Janata Party-led government in July last year, where the agreement entered into for future transactions might also be applied to international transactions of the previous four years.
The first rollback APA was signed in August between a US multinational and the tax department.
Up to September 2015, around 575 APA applications have been filed with the APA authorities. These APAs are in diverse sectors such as telecom; oil exploration; pharma; finance; banking; software development & business process outsourcing, covering international transactions such as interest payments and corporate guarantees; non-binding investment advisory services, contract manufacturing, trading; and information technology (IT) & IT-enabled services (ITeS). Approximately, 40 per cent of APA applications are from the IT & ITeS sector.
"The effort of the APA authorities is impressive. A lot of hard work has gone into analysing these cases and getting them to a closure," said Vijay Iyer, partner and national leader for transfer pricing at EY.
"The ones signed in this round are predominantly for service providers, which is a boon for Indian business environment as we have been the front runners when it comes to service industry. The frequency of concluding APAs has been promising and we look forward for many more to flow, thereby reducing substantial protractive litigation," said Rakesh Nangia, managing partner, Nangia & Co.
India signs unilateral APAs with multinationals that belong to countries with which it doesn't have tax treaties.
Bilateral APAs involve the taxpayer, its local subsidiary, the Indian tax authority and that of the country the company is headquartered in.