Advance Pricing Agreement APA is an agreement between a Taxpayer and Tax authority determining the t...........

Economic Affairs Tax System

Advance Pricing Agreement (APA) is an agreement between a Taxpayer and Tax authority determining the transfer pricing methodology for pricing the taxpayer's international transactions for future years. What was the reason for introducing the Advance Pricing Agreement (APA) Scheme in India?

1. Improving ease of doing business in India

2. To provide certainty to taxpayers in the domain of transfer pricing

3. Monitoring Global price fluctuations in advance to take immediate corrective action

4. Coordinate Quantitative Easing (QE) policies across Central Banks of G-20 countries

Select the correct answer using the codes below.

1 only

1 and 2 only

1 and 3 only

2 and 4 only

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Explanation:

The APA scheme launched by Government endeavours to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance. Its provision was introduced in Income-tax Act, 1961 in 2012 and Rollback provisions to it were introduced in 2014. The scheme aims to strengthen Government’s resolve of fostering non-adversarial tax regime. It has significantly contributed towards improving ease of doing business in India and has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner. APA gives certainty to MNCs that agree on certain principles in valuation of their cross- border transactions. They also provide assessees with alternate dispute resolution mechanism with respect to transfer pricing. It helps in determining arm’s length price of international transactions in advance for maximum period of five future years.