Consider the following about Advance Pricing Agreements APA scheme It was introduced by the Income t...........

Economic Affairs Tax System

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Consider the following about Advance Pricing Agreements (APA) scheme.

It was introduced by the Income-tax (IT) Act.
It cannot be signed with individual companies.
It endeavors to provide certainty to taxpayers in the domain of transfer pricing.
It is not applicable to international transactions.

Select the correct answer using the codes below.

1 and 3 only

2 and 4 only

2, 3 and 4 only

1, 3 and 4 only

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Explanation:

Suppose two subsidiaries A and B of the same company X are located in two different tax regimes. Say A is subjected to more taxes, and B has to pay less tax. If company X transfers most of its profit from A to B, it will need to less taxes then, because B is taxed at lower rate. This is called transfer pricing, when profits are transferred to subsidiaries to reduce tax burden.

Statement 2 and 3: It is signed with companies so that this tax evasion can be regulated. It also gives certainty to the tax department in terms of revenue collection.