CBDT signs record deals with businesses to avoid tax disputes

The Central Board of Direct Taxes (CBDT) has signed a record number of deals with businesses in FY24 seeking to avoid audit of their cross-border transactions that meet certain conditions.

The deals, called advance pricing agreements (APAs) help to avoid rigorous tax audits if certain minimum profits are declared by the companies. APAs help to avoid litigation as they give certainty to the authorities that these transactions are done at prices which are industry standards and are not meant to artificially shift profits across borders.

CBDT said in a statement on Tuesday it has entered into a record 125 APAs in FY24 with Indian taxpayers. This includes 86 ‘unilateral’ deals with businesses and 39 others which also involve tax authorities in other countries, called bilateral APAs.

When tax authorities in two countries where the business has operations come together to sign such deals, it gives extra protection to businesses from any double taxation.

This marks the highest ever signings of such deals in any financial year since the launch of the APA programme in 2012. It also shows 31% increase from the 95 deals signed in FY23. With this, the total number of APAs since inception of the APA programme has gone up to 641, comprising 506 unilateral ones and 135 bilateral ones.

FY24 also witnessed the maximum number of bilateral deals in any financial year till date. These were signed as a result of entering into mutual agreements with India’s treaty partners such as Australia, Canada, Denmark, Japan, Singapore, the UK and the US, the tax authority said.

Cross-border transactions of multinational companies have in the past seen a large number of disputes with tax authorities questioning the value of such transactions or ‘transfer price’ where they deviate from industry standards.

The scheme seeks to provide certainty to taxpayers in transfer pricing by specifying the methods of pricing and determining the arm’s length price of the transactions in advance for five future years.

Taxpayers also have the option to make the terms of such deal applicable for four preceding years and as a result, secure tax certainty for transactions done in nine years, CBDT said.

The APA programme has contributed significantly to the government’s mission of promoting ease of doing business, especially for multinational enterprises which have a large number of cross-border transactions within their group entities, CBDT said.

The APA scheme gives confidence to MNEs with growing intra-group operations across different markets.