U.S. tax authorities approve signing of bilateral APAs with India

The U.S. Internal Revenue Service on Tuesday announced that, starting February 16, its Advance Pricing and Mutual Agreement office will begin accepting requests for bilateral advance pricing agreements between the U.S. and India. This marks a big step forward to ensure tax certainty between the two countries, according to experts.

“We appreciate the efforts of the Indian competent authority and his team, as well as the IRS team, for working to reach common understandings and procedures for resolving differences fairly,” said IRS Commissioner John Koskinen. “Multi-national firms operating in both the US and India are the beneficiaries of this effort,” he added.

“The U.S. has historically been slow to move on bilateral APAs, and so many companies chose the unilateral APA route. The fact that the US has agreed to begin accepting bilateral APAs with India is good news for Indian companies,” NC Hegde, Partner, International Taxation, Deloitte told The Hindu.

This hesitation to enter into bilateral APAs might have been due to the large number of pending transfer pricing cases between the US and India, according to some experts. The two countries had around 200 cases pending for the last 4-5 years, 100 of which were resolved recently, according to the Indian government. Real progress in resolving these cases was made following the signing of the framework agreement between the Indian and the U.S. tax authorities in January 2015 as part of the Mutual Agreement Procedure (MAP) provision contained in the India-U.S. Double Taxation Avoidance Convention (DTAC).

“This is an important step forward in strengthening ties between the two governments in the area of taxation of multinationals, especially post the roll out of BEPS Action Plans by the OECD. Bilateral APAs provide the much needed certainty for doing business in each country,” Sanjay Tolia, Transfer Pricing Leader, PwC India said.