Advance Pricing Agreement - Section 92CC - International Taxation - Income Tax

Advance Pricing Agreement - Section 92CC Meaning of Advance Pricing Agreement (APA) Advance Pricing Agreement is an agreement between a tax payer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. The APA offers better assurance on transfer pricing methods and are conducive in providing certainity and unanimity of approach. Power provided to CBDT The Board, with the approval of the Central Government may enter into an advance pricing agreement with any person, (a) determining the arm s length price or specifying the manner in which arm s length price is to be determined, in relation to an international transaction to be entered into by that person; (b) income referred to in section 9(1)(i), or specifying the manner in which said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident. [ Section 92CC(1) ] Manner of determination of ALP in APA The manner of determination of arm s length price in such cases shall be any method including those already provide in section 92C(1) , with necessary adjustments or variations as may be necessary to do so. [ Section 92CC(2) ] APA to supersede provisions of section 92C or 92CA Notwithstanding anything contained in section 92C or section 92CA, the arm s length price of any international transaction, which is covered under such APA, shall be determined in accordance with the APA so entered into. The provisions of section 92C or 92A which normally apply for determination of arm s length price will be modified to this extent. As a consequence, arm s length price shall be determined in accordance with APA. [ Section 92CC(3) ] Validity of APA The APA shall be valid for such previous years as are specified in the agreement which in no case shall exceed 5 consecutive previous years. [ Section 92CC(4) ] Binding nature of APA - The advance pricing agreement entered into shall be binding- On the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into; and On the principal commissioner or commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction. [ Section 92CC(5) ] Exception - Agreement not to be binding if there is change in law or facts The agreement referred to in section 92CC(1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered. [ Section 92CC(6) ] APA can declared Void ab initio Situation - The board may, with the approval of the Central government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts. [ Section 92CC(7) ] Consequences - Upon declaring the agreement void ab initio,---- All the provisions of the Act shall apply to the person as if such agreement had never been entered into; and Not withstanding anything contained in the Act, for the purpose of computing any period of limitation under this Act, the period beginning with the date of such agreement and ending on the date of order under section 92CC(7) shall be excluded. However, where immediately after the exclusion of the aforesaid period, the period of limitation, referred to in any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. [ Section 92CC(8) ] Board to prescribe scheme, manner and procedure in this case The Board may, for the purposes of this section, prescribe a scheme specifying therein the manner, form, procedure and any other matter generally in respect of the advance pricing agreement. [ Section 92CC(9) ] Agreement so entered may also be made applicable for international transactions entered into in maximum four preceding previous years [ Section 92CC(9A) ] Where an application is made by a person for entering into an agreement referred to in section 92CC(1), the proceeding shall be deemed to be pending in the case of the person for the purposes of the Act. [ Section 92CC(10) ] Note:- Advance Pricing Agreement cannot be entered for Specified Domestic Transactions.