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APA Roll Back Rules Announced!

Published on Wed, Mar 18,2015 | 20:47, Updated at Wed, Mar 18 at 20:47Source : 

Recently, the Government announced the Advance Pricing Agreement (APA) roll back rules in Transfer Pricing cases. This move is expected to drastically reduce litigation in related cases. ‘The Firm’ brings you some quick reactions from the experts.

Rajendra Nayak, Partner – International Tax Services, EY India
The Finance Act, 2012, introduced Advance Pricing Agreement (APA) provisions in the Indian Tax Law (ITL) with effect from 1 July 2012.  The APA Rules were subsequently notified in August 2012. While the APA provisions and rules were based largely on international best practices, one element that was missing was the ability to roll back the APA to cover prior years. With the objective to further reduce litigation, the Finance (No 2) Act, 2014 amended the ITL to permit roll back of APAs for a maximum period of four prior years with effect from 1 Oct 2014, subject to such conditions, procedure and manner as may be prescribed. The Board on 14 March 2015 has notified the conditions, procedure and manner for seeking roll back of an APA. The Central Board of Direct Taxes (‘Board’), on 14 March 2015, has notified the rules for implementing roll back of APAs (APA Roll Back Rules or the Rules). As per the Rules, an applicant who has filed or proposes to file an application may seek a roll back of the APA for the same international transaction for which an APA has been applied or is proposed to be applied. The Rules also mention the procedure for seeking roll back and the circumstances in which roll back may be denied or may result in cancellation of the roll back. An application for roll back has to be filed along with the APA application. However, in case of APA applications filed prior to 1 January 2015, the roll back request may be made on or before 31 March 2015. The APA rules have also been amended to make the APA pre-filing consultation optional for a potential APA applicant.

The roll back provisions shall be applicable for the international transactions which the Applicant proposes to cover as part of the APA, subject to the Applicant having filed the return of income and Transfer Pricing Accountant’s Report in accordance with the provisions of the ITL for the relevant years for which roll back is proposed to be sought. The arm’s length price as agreed under the APA agreement shall be applicable for the international transactions covered under the roll-back year(s). However, the roll-back provisions shall not be applicable in case the international transaction has been subject matter of an appeal and the Income-tax Appellate Tribunal has passed an order disposing of such appeal before signing of the agreement. Roll back is also not applicable if the application of the roll back has the effect of reducing the total income or increasing the loss, as the case may be, of the Applicant as declared in the return of income of the said year.

Rohan Phatarphekar, Partner and Head of Transfer Pricing, KPMG India
The Government has announced the most awaited Advance Pricing Agreement (APA) rollback rules. The APAs can now be rolled-back for a period of 4 previous years provided the same international transactions are sought to be covered and the impact of roll-back does not result into reducing of income or increasing of losses reported in timely filed tax returns of those previous years.

The introduction of APA rollback rules is positive and encouraging move that the Government is giving an option to roll-back APA terms to all taxpayers even those who have already filed for APAs in the past or the handful of taxpayers who have already signed APAs with the Government. These taxpayers along with those who intend to file fresh APA applications effective from financial year 2015-16 have been given a short window of about 15 days to file roll-back applications till 31 March 2015. The deadline of March 31, 2015 seems to be stringent and it would have been helpful if tax payers would have atleast been given time till June 30, 2015.
On bare reading of the APA rollback rules few questions arise and lead to some ambiguity for example whether once a taxpayer files a roll-back application will he be able to withdraw the same or will have to withdraw the entire APA application.

Kunj Vaidya, Partner, Price Waterhouse & Co. LLP
With the recently released roll back rules for Advance Pricing Agreements, the taxpayers can now obtain certainty for transfer pricing matters in India up to a period of nine years, i.e., five prospective years and four prior years. The issuance of these rules has met with much enthusiasm from the taxpayers. However, the timing of its release and the mere two-week period available to undertake complete analysis of the potential impact of applying the roll back provisions, and thereby make a considered decision, is seen as a significant challenge.

Besides, clarifications will be required on some of the points, which could be significant deterrent for taxpayers to opt for the roll back provisions; the main ones being:
1) The rules state that in case the taxpayer is unable to apply the agreed position to any of the roll back years, the agreement would be cancelled. It is unclear if this would apply on for that particular year, or the entire APA period.

2) It is also unclear as to how the roll back provisions would apply in bilateral APA cases, where the other jurisdiction may look for agreeing on numbers different than the returned taxable income for the roll back years. This could also have an impact on the negotiation for the forward looking years under the APA.

Fatema Hunaid, Partner, Grant Thornton India LLP
Gearing up to roll-back the Indian APA!

The Central Board of Direct Taxes (CBDT) notified the Advance Pricing Agreement (APA) roll-back rules on 16 March 2015. These new rules now provide a procedural framework to apply the APA to a period of upto 4 years prior to the APA period of 5 years, effectively covering a 9-year period in the APA!

APA refers to the mechanism whereby an applicant taxpayer can negotiate on their transfer pricing model and agree with the Indian revenue eliminating long winding legal battles.  For APA applications already filed before January 1, 2015, application for roll-back has to be filed by 31 March 2015 or date of entering into the agreement, whichever is earlier.  For new APA applicants the roll back request has to accompany the main APA application.   Further, for APAs already signed prior to January 1, 2015 (very few!), roll-back applications will have to be filed by 31 March 2015 and the signed agreement will have to be revised notwithstanding anything contained in Rule 10Q of the Income-tax Rule, 1962 (i.e., Rule for revision of APA).

The APA roll back rules do seem a tad rigid to the extent that there is a mandatory requirement to roll back for the entire block of prior 4 years for the selected international transaction(s) and not on a selective basis.  Further, all new APA applicants are constrained to make a call on the ‘rolling back’ of the APA at the time of filing the main APA application itself, even before having any visibility on how the APA negotiations would actually pan out.  The opportunity to roll back the APA once the negotiations have effectively completed between the APA applicant and the APA team, may have been more reasonable. Currently, an in-depth roll-back feasibility analyses is called for in double quick time considering that the due date is 31 March 2015 for all past and new APA roll-back applications.


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