Advance Pricing Agreements (APA): Should You Consider One for Your India Entity?

Often, companies involved in cross-border transactions walk a tightrope when it comes to transfer pricing regulations. Even a small error may result in long audits, tax disputes, penalties, and, in worst cases, double taxation.

Over 174 advance pricing agreements (APAs) were signed in the fiscal year 2024 – 2025. This increase shows the importance of transfer pricing rules and the authorities’ efforts to ensure certainty for the taxpayers.

Multinationals operating in India may enter into an APA, which is a mechanism that eliminates ambiguity from transfer pricing. But the real question is: Should your Indian subsidiary consider one? Let’s discuss.

What is an APA?

It is an agreement between the authorities and taxpayers on the pricing mechanism for intercompany transactions in the future. In some cases of rollback, it also considers previous years. The parties agree on the applicable transfer pricing methodology (TPM) over a certain period for predetermined types of transactions.

Types of APAs

• Unilateral: Entered between parties of the country where the company is subject to taxation
• Bilateral: Entered between the company, tax authorities of the host nation, and foreign tax administration
• Multilateral: Entered between the company, tax authorities of the host nation, and multiple foreign tax administration

Why Should Companies Consider an APA?

Since its rollout in 2012, APAs have gained popularity as they offer several benefits that cannot be ignored:

• Companies avoid back-and-forth discussions with the tax authorities, ensuring certainty on the outcomes of covered transactions during the agreed term
• Agreement related to the information to be maintained for annual reporting, thereby reducing reporting expenses
• Lower risk and costs associated with potential appeals and audits during the APA term
• Offers versatility to develop practical approaches towards complicated transfer pricing issues
• The APA renewal process offers leverage of efforts and time spent at the time of negotiating the original APA

Transactions Covered under an APA

• All types of cross-border transactions are covered under APAs
• International transactions entered into with permanent establishments
• Taxpayers may apply APAs for only certain types of transactions, which are disclosed to the APA team
• Applicable to continuing and proposed global transactions

Examples: Transactions related to the transfer of tangible and non-tangible assets, cost-sharing, receipt and provision of services, and many more

The Flip Side

While APAs offer several advantages, companies must take note that APAs are:

• Expensive and involves a lengthy documentation and negotiation process with high applicable fees
• Time-consuming as the negotiations between the authorities and taxpayers may extend for several years
• Not always required if transactions are small and straightforward; strong transfer pricing policies are adequate in such scenarios

How Greenvissage Adds Value?

We consider APAs an effective tool to mitigate transfer pricing risks when tailored in the right context. Our experts work with clients to evaluate global tax structures, determine APA benefits, and offer complete guidance during the entire process from feasibility studies to application and negotiations.

Let’s connect; call on +91 8237857853 or drop us a mail at info@greenvissage.com.