SKP Tax Alert
Volume 9 Issue 22 |
USA and India conclude their first bilateral APA
On 17 November 2016, the Central Board of Direct Taxes in India (the apex direct tax administrative body) proudly announced that the competent authorities of India and USA signed their first bilateral Advance Pricing Agreement (APA).
In a meeting held in Washington during the last week of October, the India–USA Bilateral Competent Authorities focused on resolving long-pending Mutual Agreement Procedure (MAP) cases and achieving significant developments in the bilateral APA process.
India had started its bilateral APA process withUSA in financial year 2012-13 and had begun accepting applications from Indian taxpayers as well. However, USA started its bilateral process with India only in February 2016 by way of accepting applications from taxpayers in 
USA. In this unprecedented span of eight months, an agreement has been reached upon in the form of the first bilateral APA involving India and USA.
The other highlights of the meeting are as follows:
  • 66 MAP cases relating to transfer pricing issues were agreed to be resolved successfully.
  • 42 MAP cases relating to treaty interpretation issues were agreed to be resolved successfully.
  • The quantum of disputes involved in these cases are approximately USD 740 million (INR 5,000 crores) that relate to cases from 1999 till 2012.
  • Various issues involved in these resolutions relate to:
    • Payment of royalty;
    • Payment of management fees;
    • Cost contribution arrangements;
    • Engineering design services;
    • Contract R&D services;
    • Investment advisory services;
    • Marketing support services;
    • Software development services;
    • IT-enabled Services (both business process outsourcing and knowledge process outsourcing services);
    • Treaty interpretative issues (presence of Permanent Establishment (PE) in India and profit attribution to such PEs); and
    • Disputes pertaining to royalty income v/s business income of foreign companies, etc.
SKP's comments
This seems to be a positive factor in the creation of an encouraging economic atmosphere for the Indian subcontinent in terms of investment and business. The long list of issues that is being resolved and discussed could keep investors assured that the outlook of the tax authorities will change for the better. Furthermore, even the speed of the resolution of the contentious cases would help develop mutual trust and cooperation between India and USA.
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