An Advance Pricing Agreement is an agreement between a tax payer and tax authority (i.e., Central Board of Direct Taxes), which determines in advance, the arm’s length price or specifies the manner of the determination of arm’s length price (or both), in relation to an international transaction. Hence, once APA has been entered into with respect to an international transaction, the arm’s length price with respect to that international transaction, for the period specified in the APA, will be determined only in accordance with the APA. The APA process is voluntary and will supplement appeal and other disputes resolution measures for resolving transfer pricing dispute.
The term of APA can be a maximum of 5 years, however there is no minimum period.
An APA provides the following benefits-
Consequently, APAs provides a win-win situation for all the stakeholders involved.