Introduction

Advance Pricing Agreements (APAs) provide a proactive means of achieving tax certainty in transfer pricing. Supported by the OECD and adopted by many countries, APAs reduce the risk of disputes by establishing the transfer pricing methodology for future transactions in advance.

Types of APAs

• Unilateral: Agreement between the taxpayer and one tax authority.

• Bilateral: Agreement between the tax authorities of both jurisdictions involved.

• Multilateral: Involving more than two tax jurisdictions.

OECD Framework and Guidance

• Encourages tax administrations to adopt APA programs aligned with OECD principles.

• Promotes transparency, consistency, and mutual agreement between jurisdictions.

India’s APA Program

• Operational since 2012 with robust growth in both unilateral and bilateral APAs.

• Covers complex transactions like contract R&D, distribution, and financial services.

• Pre-filing consultation, filing, evaluation, negotiation, and final agreement stages.

Benefits

• Reduces litigation and double taxation.

• Improves investor confidence and stability.

• Provides forward-looking clarity for 5+ years

Conclusion
APAs represent a strategic compliance tool for MNEs operating in multiple jurisdictions. With support from both OECD and Indian frameworks, APAs ensure a defensible and consistent transfer pricing policy.