Govt allows MNCs to roll back advance pricing agreements to 4 prior years

The finance ministry has announced amendments to tax rules allowing multinational companies an extended benefit of ''no-audit-agreements'' signed with the tax department for four prior years as well.

The Central Board of Direct Taxes (CBDT) has notified rules for rolling back advance pricing agreements (APA), enabling multinational companies to not only ascertain their tax liability in advance but also use that principle for past four years.

"The agreement shall contain rollback provisions in respect of an international transaction," a Central Board of Direct Taxes notification said.

This would mean that a negotiated position on pricing of an international transaction reached under the advance pricing arrangement can be applied to a similar transaction for up to four years in the past.

Finance minister Arun Jaitley had, in his first budget, announced rollback provision in order to provide a predictable and a non-adversarial tax regime.

APA is a contract between a taxpayer and the tax authorities that sets out beforehand the method for determining transfer pricing pertaining to transactions between a subsidiary and its foreign parent.

The issues involve the pricing of assets, tangibles and intangibles, services, and funds that are transferred within an organisation in a cross-border transaction.

APAs were introduced to allow MNCs to declare certain value of their cross-border transactions which will not attract an audit for income suppression for five prospective years.

The IT (Third Amendment) Rules, 2015, allow retrospective application of APAs, which will benefit the companies to avoid rigorous audits of cross-border transactions and the disputes arising from it.

Transfer pricing transactions have been the source of a large number of high-profile tax disputes in India in the recent past and foreign investors have appreciated the APA programme as being fair.