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Q12. Consider the following statements about Advance Pricing Agreement:

1. APA scheme endeavours to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance.

2. It helps in determining arm’s length price of international transactions in advance for max period of 5 future years.

Which of the above statements are incorrect?



Your Answer
A

a) 1 only

Your Answer
B

b) 2 only

Your Answer
C

c) Both 1 and 2

Correct Answer
D

d) Neither 1 nor 2


Solution

The correct option is D

d) Neither 1 nor 2


Advance Pricing Agreement

APA scheme launched by Government endeavours to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance. Its provision was introduced in Income-tax Act, 1961 in 2012 and Rollback provisions to it were introduced in 2014.

The scheme gives certainty to MNCs that agree on certain principles in valuation of their cross-border transactions. It also provides them with alternate dispute resolution mechanism with respect to transfer pricing. It helps in determining arm’s length price of international transactions in advance for max period of 5 future years.

The scheme aims to strengthen Government’s resolve of fostering non-adversarial tax regime. It has significantly contributed towards improving ease of doing business in India and has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

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