CBDT signed BAPA with Indian subsidiary of Japanese trading company

48405_cbdt_signs_372The Central Board of Direct Taxes (CBDT) on 13 January 2017 entered into a Bilateral Advance Pricing Agreement (BAPA) with an Indian subsidiary of a Japanese trading company. With the signing of this agreement, the total number of bilateral APAs entered into by the CBDT has reached eight. Recently, the CBDT modified an existing Bilateral APA with another Indian subsidiary of a Japanese company. All these bilateral APAs were signed as part of the Advance Pricing Agreement Scheme of the Union Ministry of Finance.


The Union Government has introduced the Advance Pricing Agreement (APA) Scheme as part of the Finance Act, 2012 and Income Tax (Tenth Amendment) Rules, 2012. The scheme came into force on 30 August, 2012.

The APA Scheme endeavours to provide certainty to taxpayers in the field of transfer pricing through an agreement in advance. Such an agreement is entered into by the CBDT with the tax payers on the transfer price of international transactions between associated entities.

Transfer Pricing

  •  Transfer pricing is the setting of the price for goods and services sold between related legal entities within an enterprise.
  •  For instance, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is known as the transfer price.

About Advance Pricing Agreement (APA)

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  •  An APA is an agreement between a taxpayer and the tax authority determining the transfer pricing methodology for pricing the tax payer’s international transactions for future years.
  •  An APA can be unilateral, bilateral, or multilateral. A Unilateral APA is an APA that involves only the taxpayer and the tax authority of the country where the taxpayer is located.
  •  Bilateral APA (BAPA) is an APA that involves the tax payer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located and the foreign tax authority.
  •  Multilateral APA (MAPA) is an APA that involves the taxpayer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the taxpayer is located and the tax authorities of AEs.
  •  By agreeing in advance the arm’s length pricing to be applied to the tax payer’s international transactions, an APA provides certainty with respect to the tax outcome of the tax payer’s international transactions.

(Source: PIB)

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