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TMI BlogEnhancing Certainty and Compliance in Transfer Pricing through Advance Pricing Agreements : Clause 168 of the Income Tax Bill, 2025 Vs. Section 92CC of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 is to provide taxpayers and the revenue authorities with a mechanism to pre-determine the arm's length price (ALP) of international transactions. This is particularly significant in the context of transfer pricing, where the determination of ALP for cross-border transactions between associated enterprises is fraught with complexity, subjectivity, and often results in protracted disputes. The APA mechanism aims to: * Enhance tax certainty and predictability for multinational enterprises (MNEs); * Reduce transfer pricing litigation and administrative burden on both taxpayers and tax authorities; * Encourage voluntary compliance and foster a cooperative relationship between taxpayers and the tax administration; * Align India's transfer pricing regime with global best practices, as recommended by the OECD and adopted in several jurisdictions. Clause 168, while largely mirroring Section 92CC, introduces certain textual and structural changes that merit close examination. Detailed Analysis of Clause 168 of the Income Tax Bill, 2025 1. Authority to Enter into APA Clause 168(1) empowers the Board (CBDT), with Central Government approval, to enter into APAs with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of such person and transaction. This is verbatim the same as Section 92CC(5), ensuring that both the taxpayer and the tax administration are held to the terms of the APA, thereby fostering certainty and preventing unilateral deviations. 6. Circumstances Where APA is Not Binding Clause 168(6) provides that the APA shall not be binding if there is a change in law or facts having a bearing on the agreement. This is identical to Section 92CC(6). The provision is crucial in ensuring that APAs remain aligned with legislative intent and reflect material changes in the taxpayer's business or regulatory environment. 7. Void Ab Initio Declaration Clause 168(7) empowers the Board, with Central Government approval, to declare an APA void ab initio if obtained by fraud or misrepresentation. This is identical to Section 92CC(7). This safeguard protects the integrity of the APA process and acts as a deterrent against abuse. 8. Consequences of Void Ab Initio Declaration Clause 168(8) provides that, upon such declaration: * (a) All provisions of the Act apply as if the APA was never entered into; * (b) The period between the APA's date and the void order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nearly identical. All key features-scope, methods, binding nature, duration, voiding for fraud, exclusion of limitation periods, rollback, and scheme-making power-are preserved. The provisions maintain the balance between taxpayer certainty and revenue protection, reflecting the maturity of the APA regime in India. 3. Procedural Refinements The only notable procedural refinement is in Clause 168(11), which explicitly allows for closure of APA proceedings by rules, providing greater administrative flexibility and legal certainty in handling applications that do not result in an agreement. 4. Alignment with International Best Practices Both provisions reflect global best practices as recommended by the OECD's Transfer Pricing Guidelines, including: * Provision for unilateral, bilateral, and multilateral APAs; * Binding effect on both taxpayer and tax authorities; * Rollback provisions to address past years and reduce legacy disputes; * Safeguards against abuse (fraud/misrepresentation clauses); * Procedural clarity and flexibility through delegated legislation. The retention of these features in the new Bill signals India's continuing commitment to internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive tax years Terminology updated (from "previous years" to "tax years"); substance unchanged. Binding effect On taxpayer and tax authorities On taxpayer and tax authorities Substantially identical; ensures mutual commitment. Non-binding if change in law/facts APA not binding if law/facts change APA not binding if law/facts change Identical provision; standard safeguard. Void ab initio for fraud/misrepresentation CBDT may declare APA void ab initio CBDT may declare APA void ab initio Identical; ensures integrity of APA process. Consequences of void ab initio Act applies as if APA never existed; limitation period exclusion and extension Act applies as if APA never existed; limitation period exclusion and extension Same mechanism; ensures revenue protection. Power to prescribe scheme CBDT may prescribe scheme for APA process CBDT may prescribe scheme for APA process Identical; allows for detailed rules. Rollback provision Up to four previous years preceding the APA term; subject to conditions Up to four tax years preceding the APA term; subject to conditions Terminology updated; substance identical. Rollback introduced in 2014 and ret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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