Advance pricing agreement pipeline for MNCs clogged

General

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Aug 25, 2022

With as many as 1,000 applications from multinational corporations seeking an element of tax certainty in India remaining unresolved, capital inflows into the real economy from abroad may take a hit. These applications filed under the Advance Pricing Agreements (APAs) mechanism are for pre-determination of arm’s length prices for certain periods in MNCs‘ transactions with related parties abroad. The APAs, introduced in 2012 and bolstered in 2014, had initially been effective in reducing tax disputes arising out of transfer pricing adjustments by the taxman. But there has been a decline in its efficacy as the agreements got delayed in recent years particularly after the pandemic, analysts said. They added that at a time when fresh investments by the private sector are key to economic revival given the government’s acute fiscal constraints, the delays in finalising APAs could prove to be costlier. In the past 10 years, about 1,500 APA applications have been filed by multinational businesses in India but only about 420 have been concluded, leading to around 1,000 unresolved applications.

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