19 June 2015

Clarification on Rollback provisions of APA

Advance Pricing Agreement (‘APA’) Scheme was introduced in the statute in 2012, which  authorizes the CBDT to enter into agreement with the taxpayers, prescribing the arm’s length price (ALP) for international transaction which have been undertaken (which are continuous in nature) and those to be entered into between related parties in the future. The rules for roll back - extending the pricing agreement to cover 4 years prior to the date on which international transaction has been undertaken, are also in place.
The Central Board of Direct Taxes (‘CBDT’) has now given detailed clarifications vide Circular 10/ 2015 dated 10-6-2015,on the applicability of the rollback provisions. It has, inter alia, been clarified that the applicant cannot pick and choose the years for which it wishes to rollback the agreement.Issued in a question answer form the circular also clarifies the following:

  • Applicants who have filed revised return within prescribed time will be entitled for rollback on this revised return of income
  • The APA would apply to ‘same’ international transaction and same has been explained as the Functions Risks Assets (FAR) analysis. If the transaction is of same nature as agreed upon in the APA and hence FAR analysis in a year does not differ materially from the validated FAR analysis, rollback will cover FAR also.
  • Benefit of roll back will also be available in cases were no final order disposing a matter as regards the transaction is passed and it is only remanded for fresh consideration
  • Roll back would not be available in case Mutual Agreement Procedure has been concluded for any of the international transactions under APA. A pending MAP procedure will not operate as a bar.

An applicant can withdraw its roll back application though he continues to maintain the APA application for the future years. But he cannot accept the rollback results without accepting the APA for the future years.


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