Type of Advance Pricing Agreement - International Taxation - Income Tax

Type of Advance Pricing Agreement The APA scheme envisages three types of APAs: unilateral, bilateral and multilateral The choice is on the applicant to choose a particular type of APA at the time of making the application. In Unilateral APA is an agreement between the Board and the applicant and does not involve any agreement with the treaty partner. It, therefore, does not guarantee the ALP or Transfer Pricing Method (TPM), determined under an APA, being accepted by the other country. In bilateral APA , the applicant is required to make an application with the competent authority of India and simultaneously the applicant or its AE should apply to the competent authority of the other country. The two competent authorities are required to reach an arrangement through Mutual Agreement Procedure (MAP) negotiation. This arrangement is required to be accepted by the applicant before a bilateral APA can be entered into. In multilateral APA , the applicant is required to make an application With the competent authority Of India and simultaneously the applicant or its AE should apply to the competent authority of the other countries which are relevant for such a Agreement. Indian competent authority has to reach an arrangement through MAP with competent authorities of more than one country, before that agreement could be offered to the applicant. The arrangement is required to be accepted by the applicant before a multilateral APA can be entered into. Request accepted by the Competent authority In bilateral or multilateral APA can be accepted by Indian competent authority where: a tax treaty exists between India and other country(ies) containing an article on Mutual Agreement Procedure ; in case of international transactions leading to economic double taxation arising out of TP adjustments, the said tax treaty contains provisions similar to paragraph 2 in the article 9 as provided in OECD model convention on 'Associated Enterprises , and the corresponding APA program exists in the other country. In unilateral APA, the applicant does not Wish to involve competent authority of any other country, and the agreement is only between him and the Board. Since, there is no prior agreement with the competent authority of any other country; there may be a possibility of double taxation in unilateral APA.