India has signed two bilateral advance pricing agreements (APAs) with the United Kingdom in its efforts to provide certainty and stability in tax policies to foreign investors.

“The two bilateral APAs were signed with two Indian group entities of a UK based multinational company,” said the Central Board of Direct Taxes on Monday, adding that they address the issues of payment of management and service charges and payment of royalty. “These transactions generally face prolonged and multi-layered transfer pricing disputes,” it said, adding that the pacts will provide the companies a stable and predictable tax regime. The APAs cover the period 2013-14 to 2017-18 and also have a “rollback” provision for two years (2011-12 and 2012-13).

Tax certainty Under the pacts, the two Indian companies will now have tax certainty for 12 years each (five years under mutual agreement procedures and seven years under APA).

Transfer pricing disputes for each of the two companies on the same transaction were also resolved with the tax department under MAP for the years 2006-07 to 2010-11, said the CBDT.

The Finance Ministry had introduced APAs, which allow for prospective agreements between the tax payer and the tax authority over transfer prices, in 2012 through the Finance Act, 2012.

Other APAs India had also signed a bilateral APA with Japan in December 2014. The total number of such pacts signed by the country is 41 out of which 38 are unilateral and three are bilateral.

Tax experts welcomed the move and said that management charges and royalty payments have been a contentious issue in transfer pricing.

“Despite several ITAT rulings in favour of management fee and royalty payouts from the arm’s length perspective, none provided a clear guidance on adequacy of documents to be maintained by the taxpayer and the appropriate arm’s length price and rate,” said Amit Agarwal, Partner, Nangia & Co.

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