Economics

Choose the Correct Answer

Correct Answer : Option b

Explanation
Statement 1 is correct: APAs are an ahead of time agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for some set of transactions at issue over a fixed period of time. It determines, in advance, the Arm’s Length Price (ALP) or specifies the manner of the determination of ALP (or both), in relation to an international transaction. ALP is a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

Statement 2 is incorrect: Unilateral APAs are agreements between a taxpayer and the tax authority of the country where the taxpayer is located. It involves only the taxpayer and the tax authority of the country where the taxpayer is located. Multilateral APAs involves tax payer, two or more AEs of tax payer in different foreign countries, tax authority of the country where the taxpayer is located, and the tax authorities of AEs

Statement 3 is correct: APAs in India allow rollback for up to four preceding years, providing tax certainty for nine years total. The APA Scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and determining the arm’s length price of international transactions in advance for a maximum of five future years. Further, the taxpayer has the option to rollback the APA for four preceding years, as a result of which, tax certainty is provided for nine years. The signing of bilateral APAs additionally provides the taxpayers with protection from any anticipated or actual double taxation.