The Government of India (“GoI”) has decided to give a breather to various multinational companies having business in India, from the aggressive tax administration in transfer pricing matters. The GoI has confirmed that it will soon notify guidelines for Advance Pricing Arrangements (“APAs”).
In common parlance, APAs are agreements executed in advance between tax payers and the tax authorities with respect to pricing of transactions between the foreign and local entities of the same group, operative for a specific period. Transfer pricing norms seek to prevent manipulation of prices in transactions between related parties, which manipulation may lead to transfer of income from high tax jurisdictions to lower tax jurisdictions. In the process, the high tax jurisdiction tends to lose on tax collections. Administration of transfer pricing norms leads to tax disputes and transfer pricing adjustments.