ECONOMICS

Detailed explanation-1: -What is an Advance Pricing Agreement (APA)? An APA is an agreement between a tax payer and tax authority determining the transfer pricing methodology for pricing the tax payer’s international transactions for future years.

Detailed explanation-2: -In general, a bilateral APA is a binding agreement between two tax administrations and the taxpayers concerned. This is entered into by reference to the relevant double taxation convention. It governs the treatment for tax purposes of future transactions between associated taxpayers.

Detailed explanation-3: -Binding effect of APA: According to section 92CC (5) OF Income tax Act, APA is binding both on tax authorities and person entering on APA. Once Arm’s length price is determined in APA, that price only will prevail for that specified transaction.