India publishes rules for implementing roll back of Advance Pricing Agreement

The Finance (No 2) Act, 2014 amended the Indian Tax Law (ITL) to permit roll

back of Advance Pricing Agreements (APAs) for a maximum period of four prior

years with effect from 1 October 2014, subject to such conditions, procedure

and manner as may be prescribed. The Central Board of Direct Taxes (‘Board’),

on 14 March 2015, has notified the rules for implementing roll back of APAs

(APA Roll Back Rules or the Rules). As per the Rules, an applicant who has filed

or proposes to file an application may seek a roll back of the APA for the same

international transaction for which an APA has been applied or is proposed to be

applied. The Rules also mention the procedure for seeking roll back and the

circumstances in which roll back may be denied or may result in cancellation of

the roll back. An application for roll back has to be filed along with the APA

application. However, in case of APA applications filed prior to 1 January 2015,

the roll back request may be made on or before 31 March 2015. The APA rules

have also been amended to make the APA pre-filing consultation optional for a

potential APA applicant. Taxpayers would need to review implications of the

Rules on their existing and proposed APA applications and consider suitable

actions for seeking roll back of their APAs, as appropriate.

The Finance Ministry on Monday notified the Advance Pricing Agreement (APA) rules governing rollback provisions in transfer pricing cases. Though the provisions were announced in Finance Minister Arun Jaitley’s maiden Budget in July 2014, they could not be activated because the rules were not codified. Consultants said the move could have an impact on cases such as Cairn Energy.

“This is a welcome move which will provide certainty to tax payers for their four prior tax years and in all provide certainty for 9 year i.e. 5 prospective years and 4 prior years,” said Samir Gandhi, Partner, Deloitte Haskins and Sells LLP. 

He added that a company could opt for rollback provisions only with respect to same international transactions covered in the forward looking agreement. “Taxpayers who have already filed an APA application or have already entered into an agreement prior to 1 January, 2015, need to ensure that they file the rollback application in proposed form 3CEDA by 31 March, 2015,” Gandhi said. 

Additionally, even for applicants entering into an APA for FY15-16 onwards, the rollback application in Form 3CEDA will have to be filed by March 31, 2015, along with the forward looking APA application in Form 3CED. 

Applicants who opt for rollback will need to pay an additional Rs 5 lakh in fees. 

As far as bilateral and unilateral option for rollback is concerned, it will follow the forward-looking APAs, in that if the forward looking is bilateral, the rollback will also be bilateral. Similarly, where the forward-looking APA is unilateral, the rollback years will also be unilateral.

Now with experience of 3 years APA filing, the pre-filing consultation which was earlier mandatory has been made optional for the taxpayer going forward, consultants said.