Advance Pricing Agreement Considerations for India

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GLOBAL TRANSFER PRICING SERVICES

Advance Pricing

AgreementConsiderationsfor India

June 2011

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2/36 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Contents

2011 KPM , an Indian Partners ip and a member fir

ffiliated with KPMG International ooperative (K M

Introduction 1

What is an APA? 2

Clear Audit Alternative 4

The Advance Pricing Agreement

Process 6

Establishing an APA Program 11

Establishing Governing Principles 14

APAs within the Taxing Authority 16

Conclusion 18

Annexures 20




IntroductionAdvance Pricing Agreement (APA) considerations for India

allow the Central Board for Direct

Taxes (CBDT or the Board)of the Indian Revenue Service,

with the approval of the Central

Government, to enter into APAs

with taxpayers for up to five years,

binding both the taxing authority

and taxpayer with regard to the

transactions covered by the

agreement. A summary of key

provisions of the legislation is

attached as Annexure I.

This document discusses the key

principles that a successful APA

program in India will embody by

looking at the approaches taken by

different taxing authorities whose

APA programs vary in their stages

of development.

With the rapid globalization of

the economy, tax authorities inIndia have become increasingly

proactive and vigilant while

scrutinizing multinational company

transfer pricing with Indian

affiliates and correspondingly

increasing the intensity of

audits. The response to this has

been predictable substantially

increased litigation as both

taxpayers and tax authorities,

unaided by any authoritativeguidance on the subject, navigate

through transfer pricing legislation

and grapple with uncertain tax

positions year after year.

Given this background, the Indian

government has introduced

a proposal to add APAs to the

Direct Taxes Code effective from

April, 2012. The proposal will

1




2

An APA is an agreement that

determines in advance an appropriate

set of criteria (e.g. method, comparables

and appropriate adjustments thereto, as

well as critical assumptions as to future

events) for determining the transfer

prices for covered intercompany

transactions during a fixed period of

time.

For clear expectations on all sides and

for the success of the APA program,

it is important for the Board to state

unequivocally what an APA is. The

Government has set out the broad

parameters defining APAs, but not

the specifics: The arms length price

of any international transaction, in

respect of which the advance pricing

agreement has been entered intoshall

be determined in accordance with the

advance pricing agreement so entered.

(Direct Taxes Code [the DTC], Sec.

118(3)) In other words, an APA defines

the arms length price for a covered

transaction. It is binding on the person

in whose case the agreement has been

entered into and on the Commissionerand the income-tax authorities

subordinate to him. (DTC, Sec. 118(5)).

Looking at the relevant points of

reference applicable for the United

States, which has collectively more

APA experience than any other taxing

authority, the language differs. An

APA is defined as a binding contract

between the IRS and a taxpayer by

which the IRS agrees not to seek a

transfer pricing adjustment under IRC,

Sec. 482 for a covered transaction

if the taxpayer files its tax return for

a covered year consistent with the

agreed transfer pricing method (TPM).

(Announcement and Report Concerning

Advance Pricing Agreements, March29, 2011, page 1). An APA binds the

Internal Revenue Service [the IRS] and

taxpayer to the terms of the agreement.

In contrast to the US rules, in Mexico an

APA, whether unilateral or bilateral, is a

ruling issued by the taxing authority to a

specific taxpayer. It is not a contractual

arrangement.

2

What is an APA?




3

There is one item on which all

authorities seem to agree: the APA

process is not an advance audit, and that

should be stated clearly to both internal

and external stakeholders. Further, as an

APA seeks to address the appropriatearms length result for prospective

years, the tax authority review should

be focused on agreement to general

principles, and in-depth data reviews

for prior years, to the extent they are

necessary, should be circumscribed.

In India, the Board will limit the term of

an APA to five years (DTC, Sec. 118(4)),

as in China (3-5 years; ( Implementation

Measures of Special Tax Adjustments

(Trial Version)[ the IMSTA], Chapter

6, Article 49), rather than establishan expected minimum term, as in

the United States (5 years; Revenue

Procedure 2006-9 [the RP], Sec. 4.07).

Flexibility in the number of years may

be a particularly important feature at the

launch of an APA program, as APAs with

long terms are sometimes necessary

to accommodate a business cycle for a

particular taxpayer, or for other reasons.

The APA process is notan audit, and that shouldbe stated clearly to bothinternal and externalstakeholders.




4

that an APA should offer a viable

alternative to the adversarialsystem that will produce a fair

outcome. This is particularly true

considering that an APA process

is initiated by the taxpayer, and

therefore the primary burden

associated with participation

in the program is placed on it.

Clearly distinguishing the new

APA alternative from the existing

compliance and enforcement

regime will make this point. Inother words, the APA Program

conducted by the National

Office must not be construed as

synonymous to the normal audit

proceedings undertaken by the

revenue authorities at the local

level.

Taxpayers must perceive that the

APA Program benefits them. Quitesimply, if it does not, they will not

participate and the program will

fail. Obviously, by introduction

of such a program, the Indian

government wants the program

to succeed. A key factor affecting

participation in the program,

and therefore its success, is

4

A key factor affecting participation in the program,and therefore its success, is that an APA shouldoffer a viable alternative to the adversarial systemthat will produce a fair outcome.

Clear Audit Alternative




5

The approach suggested here is

consistent with that taken by many

other jurisdictions. For example, in the

United States, the APA Program is an

alternative to the traditional examination

process: APAs are intended tosupplement traditional administrative,

judicial, and treaty mechanisms for

resolving transfer pricing disputes.

(RP, Sec. 2.04(1)) The US engages

with taxpayers in a principled and

cooperative manner on a prospective

basis. (RP, Sec. 2.01).

China makes clear that an APA

supersedes local authority: All state

and local tax bureaus shall accept and

implement an APA that is concluded

between the tax authorities andthe taxpayer, provided that the

taxpayer abides by all the terms and

requirements of the APA. (IMSTA,

Chapter 6, Article 59.)

An alternative to the adversarial process

requires flexibility in the program. In

contrast to an audit, the Board can

have greater latitude to rely on taxpayer

representations when negotiating with

taxpayers. The government can thenverify those representations when

reviewing compliance with the APA.

In the event taxpayer misrepresented

or omitted information the Board can

revoke the APA ab initio and subject the

taxpayer to audit.




6

Prefiling conferences can be held on a

named or anonymous basis.

Particularly in the beginning of the

program, it would be useful if taxpayers

are given an opportunity to meet the

Board personnel, who will process

their case. This will help build trust

in the process. In particular, offering

anonymous prefiling conferences

provides taxpayers the opportunity

to determine the receptivity of the

Board to the issues in its particular

case without fear of inviting an audit

or identifying possible areas of audit,

should the taxpayer decide not to

proceed with an APA.

A. Prefiling conferences

Prefiling conferences are used in manyjurisdictions to allow taxpayers to

discuss the suitability of an APA before

deciding to pursue it. In most places,

as in the US, they are voluntary. In the

US, the IRS encourages taxpayers

to request a prefiling conference so

that the IRS can provide information:

a prefiling conference [can be

used] to clarify what information,

documentation, and analyses are

likely to be necessary for the Service

to consider an APA request. (RP, Sec.

3.02) In China, prefiling conferences are

mandatory.

The Advance

Pricing Agreement Process

Particularly in the beginning of the program,giving taxpayers an opportunity to meet theBoard personnel who will process their case

will help build trust in the process.




7

The prefiling conference can cover a

variety of topics. A document should

precede the prefiling conference so

that all are prepared for a productive

meeting. China lists these topics that

it would cover in a prefiling conferenceand they serve as a good outline of

areas to cover. (China Annual Report

[the CAR], p. 8)

Years to be covered under the

arrangement

Related parties involved and covered

transactions

Overview of business operations in

prior and future years

Functional and risk profiles of the

applicant

Rollbacks

Any other issues requiring

explanation

And for bilaterals

Prefiling conferences with other tax

authorities

Any transfer pricing method or

calculation method proposed to

other taxing authorities.

Notably, prefiling conferences can alsoserve as a screening mechanism to

eliminate cases that fall outside the

parameters of the stated policy for the

APA Program.

Prefiling conferences, both anonymous

and named, are so much a part of

worldwide APA administration that the

absence of such conferences could be

perceived as an unwillingness to engage

in open communication with taxpayers.

B. Jurisdiction and the firstAPA year prospectivity

The Board may need to decide which

arm within the Indian Revenue

Service will have control or jurisdictionover an APA year, and at what point

that jurisdiction will shift (if it does.)

Precedents within the Indian Revenue

Service may include the point at which

a case moves into the jurisdiction of the

competent authority for resolution.

In the United States, a taxpayer

must file its APA request within the

time prescribed by statute (including

extensions) for filing its Federal income

tax return for the first proposed APA

Year. (RP, Sec. 4.07(2)) The US rules,while easily administrable, make

prospectivity somewhat difficult,

especially given the current backlog in

the APA Program. Corporate tax returns

for calendar year taxpayers are due

March 15 of the year following year end.

Taxpayers can file an extension for six

months, so in effect the return is due

September 15 of the following year.

Therefore, the IRS must receive an APA

request for a calendar year taxpayer

seeking to cover 2010 by September 15,

2011.

Recent statistics released by the IRS

indicate that it takes on an average

three years to close a bilateral Advance

Pricing Agreement.1This delay in

case processing, together with the

inherent problems associated with thejurisdictional calculations referenced

above result in the loss of a fair amount

of prospectivity in the United States

Rules requiring taxpayers to file APA

requests earlier than nine months after

the close of the first proposed APA year

could improve prospectivity. In Japan,

for example, taxpayers have to file APA

renewal requests before the start of

the first year of the APA renewal period.

(Commissioners Directive on the

Operation of Transfer Pricing, NationalTax Agency of Japan, Section 5-22.)

1. Internal Revenue Service Doc. 2010-27415; 2010

TNT 248-41, IRS Releases 2010 Competent

Authority Statistics, December 27, 2010.




8

C. APA Application: What willbe required?

In general, an APA application should

contain enough information to properly

evaluate the arms length nature of theproposed transactions. Governments

vary in their specific requests, which

accommodate their specific reporting

requirements. The Chinese rules give a

good summary of the items necessary

to make a complete evaluation: (IMSTA,

Chapter 6, Article 51)

Identifying information of the related

parties subject to the APA

History of business operations,

worldwide organizational structure,

ownership, capitalization, financial

arrangements, principal businesses,

locations of the business and major

transaction flows

A description of the covered

transactions, their value and

how they relate to any company

transactions not covered under the

APA

For each covered party a detailed

analysis of the functions and

economic activities performed, the

assets employed, the economic

costs incurred, the risks assumed,

relevant contractual terms, relevant

economic conditions

Copies of intercompany agreements

Financial and tax data for at least

three years

Transfer pricing compliance

documentation

Any legal authority or tax treaty issue

relating to the proposed transfer

pricing method

A discussion of previous and current

issues that the taxing authority has

raised at any point in the examination

process relating to the covered

transactions

A complete discussion regarding

how the taxpayer chose its proposed

method as well as the research

required to support its proposed

method. For example, if the

taxpayer puts forward comparable

companies, the criteria applied in

order to arrive at those companies

as well as their complete financial

information should be provided.

If India were to require other tax forms

that touch on related party transactions,

these forms could be included also.

For example, the United States

requires taxpayers with related party

transactions with foreign entities to file

a Form 5471 (US parent company) or

5472 (US subsidiary of foreign parent)

as part of the APA submission (RP, Sec.

4.03).

D. Should an APA Programrequire user fees?

The success of an APA Program will also

depend on the fees, if any, which may be

required to be paid by the taxpayer. The

Board, while framing the Guidelines,

would have to consider: whether or not

to have a user fee at all. If yes, should

it be a flat fee or a variable fee linked

to an estimate of cost or some other

measure? Tax administrations answer

this question in a variety of different

ways depending to a large extent where

their funding source comes from. In

the United States, the expenses of the

APA Program are covered within the

budget of the Internal Revenue Servicethat receives an annual budget from

Congress. Taxpayers must however,

pay a user fee to avail themselves of

the services of the Advance Pricing

Agreement Program. The user fee in the

US, with some exceptions, is

USD 50,000 (RP, Sec. 4.12). In contrast,

China does not require a user fee to file

an APA request (CAR, Sec III.1.c.(b)). In

Canada, on the other hand, a filing fee

is imposed and is based on an estimate

of travel costs for the government to dosite visits and otherwise to administer

the program (Circular 94-4R, Section

27).

If the Board is considering a filing fee, it

needs to reflect on the fact that a high

user fee may eliminate certain taxpayers

from seeking an APA; i.e., those whose

revenues, risk, or exposure may not

justify paying a fee. In this sense,

a user fee functions as a screen to

keep taxpayers out of the program. Is

such a result desired? The Board willalso need to consider whether such

constraints would need to be continued

once the program is operational and

more taxpayers avail themselves of the

program.




9

E. Case processing

The Board will need to determine

who will process APAs, evaluate the

taxpayers position and negotiate on

behalf of the Board. The Board maychoose to disclose this information

to the public or not. China and the

United States both provide guidance

regarding the way taxpayers can

expect cases to be handled. Published

guidance sets expectations for both

the employees processing the case

within the taxing authority as well as

for taxpayers accessing the system.

However, publishing detailed guidance

prematurely may make it difficult for the

Board to meet its own expectations.

Chinas guidance sets out the

parameters of the process without

specifying exactly who will do what.

This general approach offers a good

model for a nascent program such as

Indias and contrasts with the specific

rules governing more mature programs

like those in the US or Canada.

In China, due diligence follows receipt

of the APA request,: Upon receipt of

the formal APA application package

and other required documents, the taxauthority will evaluate the documents

and form a position within five

months (CAR, p. 10.)

The due diligence phase is followed by

negotiation of the APA: For unilateral

APAs, the tax authority will arrange

negotiations and discussions with

the enterprise after the tax authority

reaches a position following itsexamination and evaluation process.

For bilateral or multilateral APAs,

the SAT will arrange negotiations

and discussions with the relevant

competent authorities based on the

SATs position following its examination

and evaluation of the relevant

information provided. (CAR, p.11.)

F. Compliance requirements

The Board needs to frame guidelines

to establish procedures to administer

the APA and to verify a taxpayers

compliance with its terms. Most

governments use a report, filed annually

and evidencing compliance in each

year of the APA to assure compliance.

The Board should determine who

will primarily be responsible for this

compliance verification. It may be

useful to offer this role to the field office

that would have had jurisdiction in

auditing the taxpayer.

G. Terminating an APA

Under some (usually rare)

circumstances it may be necessary

to terminate an agreement. Many

governments spell out some of thosecircumstances. In the case of fraud or

failure to disclose material information,

the Board could take the position that

the APA was void ab initio and therefore

a taxpayer would be subject to audit for

the years in question (DTC, Sec. 118(7)).

The Board should determine who will primarilybe responsible for this compliance verification.It may be useful to offer this role to the field

office that would have had jurisdiction inauditing the taxpayer.




10

H. Rollbacks

The Board will need to consider whether

providing a rollback mechanism at the

start of the Indian APA Program is in the

best interest of the Government andtaxpayers. While a rollback mechanism

can resolve pre-APA years and therefore

improve efficiency of the process,

the rules and objectives related to

conducting tax audits would need to be

reconciled with the rules and objectives

of an APA program, which essentially

are to be flexible in setting standards for

prospective evaluation of a taxpayers

transfer pricing treatment of covered

transactions.

In the United States, the APA Programrules state that the Services policy

is to use rollbacks whenever feasible,

based on the consistency of the facts,

law, and available records for the prior

years. (RP, Sec. 2.12)

Rollbacks, when permitted, are

voluntary in the United States. In

Canada, rollbacks are considered at

the behest of the taxpayer, or the tax

service officer may decide to apply

the APA to the non statue barred prior

taxation years only in a scenario, ifthe terms and conditions of the prior

years are similar to the year for which

the APA has been concluded (Circular

94-4R, Section13). The Chinese APA

regulations also provide for rollback.

However, the same is applicable only in

a case of specific application made by

the taxpayer and the same is approved

by tax authorities. (IMSTA, Chapter 6,

Article 49)

I. Renewals

Many countries recognize that taxpayers

may wish to roll forward, or renew,

existing APAs particularly when the

facts and circumstances surroundingthe covered transactions have not

changed materially. In such case, it

may be possible to use streamlined

procedures to expedite processing.

China has such procedures, If the APA

needs to be renewed, the enterprise

should submit the renewal application

90 days before the end of the APA

implementation period (IMSTA,

Chapter 6, Article 57).

The United States promises expedited

treatment for renewals (RP, Sec. 12) butin practice currently requires a similar

level of review notwithstanding similar

facts. Renewals benefit from a reduced

user fee, USD 35,000 (rather than

USD 50,000) for a renewal request

when its subject matter is substantially

the same as in a previous APA request

by the taxpayer. (RP, Sec. 4.12(4)).




11

processto resolve transfer pricing

issuesin a principled and cooperative

manner on a prospective basis. The

APA Process increases the efficiency

of tax administration (RP, Sec. 2.01)

The parties work towards a mutual

agreement in a spirit of openness and

cooperation. The prospective nature of

APAs lessens the burden of compliance

by giving taxpayers greater certainty

regarding their transfer pricing methods,

and promotes the principled resolution

of these issues (RP, Sec. 2.01).

The process of developing a policy

statement can engage the cooperation

of the diverse internal stakeholders

within the India Revenue Service: the

national office, audit officers, lawyers,

executives and policy makers who

can discuss the program and what

the Board hopes to achieve with it.

Once developed, a policy statement

will serve as an organizing principle in

training employees or re-training those

accustomed to tasks with different

priorities.

For example, the Chinese governments

APA policy lets employees know how

to treat taxpayers and tells taxpayers

the governments expectations

regarding their participation in the

process. In China, the APA process

provides an effective way to enhance

understanding, strengthen collaboration

and mitigate disputes. (CAR, p.3)

A policy statement can bring

stakeholders back to a common ground

if things go awry. And, the absence

of a policy statement can create

confusion and a vacuum with regard to

expectations of the Program and who

will be expected to meet them.

A. APA Program policy

statementA new initiative like an APA Program

impacts a variety of stakeholders

within the government, in the business

community and with treaty partners

around the world. A policy statement in

this regard will provide clarity as to the

purpose of such APA Program from the

perspective of the Indian government.

A policy statement gives the Board a

touchstone to return to over and again

in public statements and in discussions

with all stakeholders.In the United States, the IRSs policy

pronouncements echo those issued

by many taxing authorities: the

APA Program provides a voluntary

Establishing an APA Program




12

B. Target audience

Policy decisions will impact the type

of taxpayers interested in pursuing an

APA so it is important to identify the

desired audience for APAs. To havesuccessful outcomes from the Program,

the Board needs to select initial cases

for consideration carefully and choose

bilateral in certain cases (discussed

fully below). An onslaught of cases

combined with a paucity of personnel

to handle them will not translate to

success. To help define the target

audience, the Board can ask if they wish

to:

Interest as many taxpayers as

possible?

Get the most burdensome cases

out of the adversarial system?

Work with only the largest

taxpayers?

Start with relatively simple

cases and develop expertise

before addressing more complex

cases, (like intangible shifting for

example)?

The Board then can devise the program

to best appeal to the target audience.

The Board can further examine what

components of an APA Program such

an audience would find most appealing.

Faster resolution of transfer pricing

matters? More certainty? Resolution

of issues for a longer period of time?

Interacting at the taxing authority with a

more professional staff or a staff more

experienced in transfer pricing matters?

Different taxing jurisdictions have

taken different views on this subject.

For example, China gives priority to

companies that have been subject to

transfer pricing audits. The UK prefers

to use APAs for complex, rather thanstraightforward cases, where complex

means there is doubt as to how

the arms length standard should be

applied; (Statement of Practice 14.a.)

those cases likely to result in double

taxation or those in which taxpayer

seeks to use a highly tailored transfer

pricing method.

China sets forth guidelines requiring

candidates for APAs to meet all of the

following criteria: companies with

related party transactions exceedingRMB 40 million (approximately

USD 6 million); companies meeting

reporting requirements for related-

party transactions, and those fulfilling

contemporaneous documentation

requirements (IMSTA, Chapter 6, Article

48). The Board can consider such

criteria either as guidelines for potential

applicants or as a requirement.

After developing more institutional

experience, the Board can train

additional personnel and add resourcesas needed in order to increase the

programs capacity.




13

C. The importance of bilateralAPAs

Eliminating double taxation with

certainty requires a bilateral rather than

a unilateral APA. For this reason theavailability of bilateral APAs makes the

program more appealing to taxpayers

seeking certainty on both sides of their

transactions. Using bilaterals, the Board

can more efficiently deploy its resources

to fully resolve transfer pricing disputes

and the double taxation they often

cause.

A bilateral APA program easily fits within

the provisions the Mutual Agreement

Procedure (MAP) article of most

treaties and within the MAP article(27) of the US-India Treaty specifically.

Coming into force in 1989 before the

beginning of the APA Program in the

United States, the Treaty does not name

APAs in Article 27 as some of the more

recent treaties do. However, it does

envision close cooperation between

the countries to alleviate double

taxation: The competent authorities,

through consultations, shall develop

appropriate bilateral procedures,

conditions, methods and techniques

for the implementation of the mutual

agreement procedure provided for in

this article. (Article 27(2))2

Bilateral APAs are clearly preferred

by most governments where an

effective double tax treaty exists.

Indeed, Germany requires bilateral

APAs. In Germany, APAs by definition

are bilateral. Provisions do exist for

unilateral APAs only when the bilateral

treaty network is not available. In

such cases, the regional tax authority

may issue a unilateral decision with

future effect, with the approval of the

Federal Central Tax Office. However,

the German government is clear thatsuch unilateral rulings are not favored:

The fact that unilateral measures do

not reliably eliminate double taxation

or might even create taxation gaps

advocates rejecting such requests.

(APA Procedures, Section 1.2).

France takes a similar view: bilateral

APAs are the rule and unilaterals are the

exception only in special cases: where

there is no treaty, where a large number

of countries are involved, thus making

a multilateral APA impractical, or wheresmall businesses are involved.3

The MAP process offers opportunities

to collaborate with treaty partners and

gain their support for Indias initiative.

A unilateral-only program does the

oppositeit pressures taxpayers to

make a choice between pursuing a

collaborative path with India or with

another country, as companies are

unlikely to pursue separate unilaterals in

two jurisdictions given the expense as

well as the lack of certainty remaining atthe end of such a long process.

Indeed, China highlights these points

in its Annual Report. Advance Pricing

Agreements: bilaterals (a) facilitate

communication and collaboration

among the competent tax authorities

of different jurisdictions; and (b) help

enterprises avoid transfer pricing

audits as well as double taxation risks

in two (for bilateral APA) or more (formultilateral APA) tax jurisdictions. (CAR,

p.3)

The United States also has a clear

preference for bilateral (or multilateral)

APAs: Where possible, in the interest

of sound tax administration and to

ensure that no potential for double

taxation results from an APA, an APA

should be concluded on a bilateral

or multilateral basis between the

competent authorities through the

mutual agreement procedure of therelevant income tax treaty or treaties.

(RP, Sec. 2.09)

Canada concurs: The purpose of

pursuing a BAPA or MAPA is to avoid

double taxation between (the taxpayer)

and a non-resident entity, which may

happen when only a unilateral APA is in

place. (Cir 94-4R, Par. 69).

2. In particular, the language of the treaty between

India and the United States should be sufficient

to include a bilateral APA component to Indias

APA Program. The governments position for

Competent Authority discussions can be developed

by the Board and then negotiated with the treaty

partner under the provisions of the treaty. We have

not examined the provision of every tax treaty to

which India is a party, but we would anticipate the

language of other treaties should be similar.

3. Instruction 4 A-11-05, No.110 (6/24/2005) Instruction

relative la garantie prvue larticle L.80 B 7e du

Livre des Procdures Fiscales et la Procdure

daccord pralable unilatral en matire de prix de

transfert

A bilateral APA program easily fits within theprovisions the Mutual Agreement Procedure (MAP)article of most treaties. Bilateral APAs are clearly

preferred by most governments where an effectivedouble tax treaty exists.




14

B. APA Program rules

The Board should publish rulesexplaining the APA process, how

the Board will administer it and how

taxpayers will engage it. Countries

vary in the level of detail they publish;

advantages and disadvantages accrue

to highly detailed or more general rules.

General rules give taxpayers more

leeway and they can easily be refined

later on once the Program understands

its needs. On the other hand, the Board

could issue more detailed guidance

including for example template letters

to taxpayers and a model APA, all culled

from other taxing authorities published

guidance. The clearer the Boards vision

the more easily it can establish Program

rules. The model final implementing

agreement between the IRS and

taxpayers is attached as Annexure II4.

A. Program goals

Setting goals helps the Board measureits success internally and against

stakeholder expectations. If to make

these goals public is a separate

question; answering no however does

not obviate the need for goals.

The goals can relate to the number

of inquires, the number of actual APA

requests, the number of finished APA

cases, the number of cases diverted

from the adversarial path, staff trained.

Short term and long term goals can be

established and should be revisitedfrequently, perhaps at six-month

intervals at the beginning of the

program.

14

Establishing governing

principles

4. http://www.irs.gov/businesses/corporations/article/0,,id=96277,00.html




15

C. Transparency

Transparency in the program, by periodic

reporting and public statements,

builds public awareness and support.

Including taxpayer input into thedevelopment of procedures will assist

in this endeavor. Data collection gives

the government the tools necessary to

see where improvements are needed

or the program is not meeting its own

or the publics expectations. Public

reporting also gives the taxing authority

an opportunity to present its own views

to the public in order to set the publics

expectations.

We note rising expectations of

transparency as more governmentsrelease information to the public on

an annual basis. The United States

started the trend toward transparency

over ten years ago by issuing a report

describing the experience, structure and

activities of the APA Program for the

years 1991-1999. The IRS has issued

an annual report every year since then;

the most current is the Announcement

and Report Concerning Advance Pricing

Agreements, issued March 29, 2011. The

report also includes statistics reflecting

how quickly the IRS processes APA

cases. Korea, Japan, Canada, Australia

and China also release information to

the public regarding the functions and

activities of their APA programs. Other

countries can be expected to follow suit.

D. Disclosure

An APA Program that protects a

taxpayers identity as well as its

confidential information encourages

participation by the business

community. The United States

guarantees complete confidentialityfor taxpayers by defining the APA

and information related to it as tax

return information, which is subject

to strict protection under Section

6103 of the Internal Revenue Code

and other provisions. Canada also has

confidentiality requirements (Par. 75), as

does China (IMSTA, Chapter 6, Article

60).

In the absence of existing measures to

protect taxpayers confidentiality, adding

such procedures may improve taxpayerconfidence.




16

In Canada, the APA Program is located

in its Competent Authority office and

staffed by accountants (primarily) and

economists.

Whatever its location, the head of the

program should have the authority to

make decisions furthering the stated

goals of the program as well as the

support of executives in the organization

required to execute them. The authority

to do things differently than the agency

is accustomed to is tempered by

provisions requiring revocation in the

event of material misrepresentations.

A. Where will the APA

Program reside?The ubiety of the program may reflect

on its identity. In the United States,

the APA Program is located in the

Office of Associate Chief Counsel

(International)the office that serves

as legal counsel to the Commissioner

of the Internal Revenue Service. It is

staffed by lawyers and economists.

The APA Program and the Competent

Authority functions have worked

successfully over the years as a team

in dealing with requests for bilateralor multilateral APAs. In a recent

development designed to deal with

a large backlog of cases, bilateral

APA cases may also be assigned

to personnel within the Competent

Authority function.

16

APAs within the TaxingAuthority




17

B. Requisite skills andtraining

Negotiating an APA differs from

auditing a taxpayer. A successful

APA program requires a technicallyknowledgeable staff that can negotiate

a case to resolution, taking into account

the disparate interests of various

stakeholders. A team combining

accountants, attorneys and economists

and designating a leader from among

them can provide the necessary skills.

Economists can develop a sound model

for arms length pricing, accountants

analyze taxpayers books and records

to provide an understanding of the

business and the extent to which the

model fits the taxpayers operations.

Attorneys offer negotiating skills and

the context to understand where a

particular set of facts fits in with the

Boards legal position on other transfer

pricing cases.

To the extent the personnel staffing the

APA program need to learn new skills,

where will the training come from?

For example, accountants in the field

work on APA teams all over the world

applying their skills to a different end

negotiating an APA rather than auditing

a business. Can such a model work in

India?

Does anyone with the desired expertise

already work in the Board or within

other government agencies? If not,

how will the program be staffed? Who

will be invested in the success of the

Program and how will their performancebe measured? Will the Board use

the assistance of economists in the

Program? If so, where will they come

from?

To the extent that such a collaborative

approach is new to the agency, how will

it secure the training necessary to be

successful?

C. Interacting with the field

It is important to set forth the role and

expectations of the field particularly

in the beginning of the Program. The

Board should clearly distinguish the

APA Program from the audit function.

The APA Program can consult with

the audit function, which may have

expertise regarding a particular taxpayer,

but the APA Program should lead the

negotiations. Placing the APA Program

in the drivers seat will go a long way in

sending the message that an APA is not

a prospective audit.

A technical point regarding the

interaction between the audit and APA

functions: The Board should specify

what, if any, information gathered

during the APA process the audit

function can use in the event the APA

fails. In the US, the IRS differentiates

between factual and non-factual oral

and written representations madein conjunction with the APA request

and development. The field may use

any factual information it collects as

part of the APA process in an audit or

during any administrative proceeding.

However, the field may not use non-

factual representations. (RP, Sec. 10.04)

A factual representation could be the

taxpayers financial data, while a non-

factual representation is the economic

analysis that develops the transfer

pricing method using that data. In theabsence of such a provision, the transfer

pricing method proposed by taxpayer or

the analyses accompanying it could be

used by the field team in an audit of the

taxpayer in the event the APA failed.

The Indian Tax Tribunal is a unique

authority that taxpayers in India

must take into account. Deciding

questions of fact, the Tax Tribunal plays

an important role in transfer pricing

cases whose outcome often relies on

questions of fact. How will the Boardweigh Tax Tribunal decisions when

considering APA applications? The

Board should address this question as

it develops rules for implementing the

program.

Placing the APA Program in the driversseat will go a long way to sending the

message that an APA is neither an auditnor a rubber stamp for audit results.




18

India would do well to develop an Advance

Pricing Agreement program to assist withaddressing complex transfer pricing issues

in a more cooperative, less adversarial and

more efficient way. Countries around the

world use APAs to improve compliance

and to best deploy their transfer pricing

resources. Taxpayers appreciate the

certainty they provide.

18

Conclusion




19




2020

Annexures




21

Annexure I

Annexure I

Direct Taxes Code Provisions relating to APA

Section Text of the Section

118 (1) The Board, with the approval of the Central Government, may enter into an

advance pricing agreement with any person, specifying the manner in which

arms length price is to be determined in relation to an international transaction,

to be entered into by that person.

(2) The manner of determination of arms length price referred to in sub-section (1)

may be any method including one of the prescribed methods, as referred to in

sub-section (1) of section 117, with such adjustments or variations, as may benecessary or expedient so to do.

(3) The arms length price of any international transaction, in respect of which the

advance pricing agreement has been entered into, notwithstanding anything

in this Chapter, shall be determined in accordance with the advance pricing

agreement so entered.

(4) The agreement referred to in sub-section (1) shall be valid for such financial years

as specified in the agreement which in no case shall exceed five consecutive

financial years.

(5) The advance pricing agreement entered into shall be binding

(a) only on the person in whose case the agreement has been entered into;(b) only in respect of the transaction in relation to which the agreement has

been entered into; and

(c) on the Commissioner, and the income-tax authorities subordinate to him,

only in respect of the said person and the said transaction.

(6) The agreement referred to in sub-section (1) shall not be binding, if there is any

amendment to the Code having bearing on the agreement so entered.

(7) The Board may, by order, declare an agreement to be void ab initio, if it finds that

the agreement has been obtained by the person by fraud or misrepresentation

of facts.

(8) Upon declaring the agreement void ab initio, the provisions of this Code shall,after excluding the period beginning with the date of such agreement and

ending with the date of order under sub-section (7), apply to the person as if

such agreement had never been entered into.

(9) For the purposes of this section, the Board may, by notification, frame a Scheme

for advance pricing agreement in respect of an international transaction.




22

Annexure II

Model APA Based on Revenue Procedure 2006-9

ADVANCE PRICING AGREEMENT

between

[Taxpayers Name]

and

THE INTERNAL REVENUE SERVICE

22




ADVANCE PRICING AGREEMENT

between

[Taxpayers Name]

and

THE INTERNAL REVENUE SERVICE

PARTIES

The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Taxpayers Name], EIN

________.

RECITALS

[Taxpayer Name] is the common parent of an affiliated group filing consolidated US tax returns (collectively referred to as

Taxpayer), and is entering into this APA on behalf of itself and other members of its consolidated group.

Taxpayers principal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].

This APA contains the Parties agreement on the best method for determining arms length prices of the Covered

Transactions under I.R.C. section 482, any applicable tax treaties, and the Treasury Regulations.

{If renewal, add} [Taxpayer and IRS previously entered into an APA covering taxable years ending _____ to ______,executed on ________.]

AGREEMENT

The Parties agree as follows:

1 Covered Transactions. This APA applies to the Covered Transactions, as defined in Appendix A.

2 Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.

3 Term. This APA applies to Taxpayers taxable years ending __________ through ________ (APA Term).

4 Operation.

a. Revenue Procedure 2006-9 governs the interpretation, legal effect, and administration of this APA.

b. Nonfactual oral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue

Procedure 2006-9 (including any proposals to use particular TPMs), made in conjunction with the APA Request

constitute statements made in compromise negotiations within the meaning of Rule 408 of the Federal Rules of

Evidence.

5. Compliance.

a. Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other

requirements of this APA on its timely filed US Return. However, if Taxpayers timely filed US Return for an APA

Year is filed prior to, or no later than 60 days after, the effective date of this APA, then Taxpayer must report its

taxable income for that APA Year in an amount that is consistent with Appendix A and all other requirements of thisAPA either on the original US Return or on an amended US Return filed no later than 120 days after the effective

date of this APA, or through such other means as may be specified herein.

23




24

b. {Insert when US Group or Foreign Group contains more than one member.} [This APA addresses the arms-length

nature of prices charged or received in the aggregate between Taxpayer and Foreign Participants with respect to

the Covered Transactions. Except as explicitly provided, this APA does not address and does not bind the IRS with

respect to prices charged or received, or the relative amounts of income or loss realized, by particular legal entities

that are members of US Group or that are members of Foreign Group.]

c. For each taxable year covered by this APA (APA Year), if Taxpayer complies with the terms and conditions of thisAPA, then the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts

charged in the aggregate between Taxpayer and Foreign Participant[s] with respect to the Covered Transactions.

d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:

i. enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section

482 consistent with this APA;

ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006-9; or

iii. revise this APA, if the Parties agree.

e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with

Appendix C and section 11.01 of Revenue Procedure 2006-9. Taxpayer must file the Annual Report for all APA

Years through the APA Year ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each

subsequent APA Year by [insert month and day] immediately following the close of that APA Year. (If any date falls

on a weekend or holiday, the Annual Report shall be due on the next date that is not a weekend or holiday.) The IRS

may request additional information reasonably necessary to clarify or complete the Annual Report. Taxpayer will

provide such requested information within 30 days. Additional time may be allowed for good cause.

f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayers US Returns, Financial

Statements, and other APA Records, for the APA Term and any other year necessary to verify compliance. For

Taxpayer to comply with this APA, an independent certified public accountant must {use the following or an

alternative} render an opinion that Taxpayers Financial Statements present fairly, in all material respects, Taxpayers

financial position under US GAAP.

g. In accordance with section 11.04 of Revenue Procedure 2006-9, Taxpayer will (1) maintain its APA Records, and

(2) make them available to the IRS in connection with an examination under section 11.03. Compliance with this

subparagraph constitutes compliance with the record-maintenance provisions of I.R.C. sections 6038A and 6038C

for the Covered Transactions for any taxable year during the APA Term.

h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482-1(a)(1) and (i)(9) of a member

of an affiliated group filing a US consolidated return will be determined under the I.R.C. section 1502 Treasury

Regulations.

i. {Optional for US Parent Signatories} To the extent that Taxpayers compliance with this APA depends on certain acts

of Foreign Group members, Taxpayer will ensure that each Foreign Group member will perform such acts.

6. Critical Assumptions. This APAs critical assumptions, within the meaning of Revenue Procedure 2006-9, section 4.05,

appear in Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006-9, section 11.06,

governs.

7. Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered

return information under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a written

determination under I.R.C. section 6110(b)(1). Section 521(b) of Pub. L. 106-170 provides that the Secretary of

the Treasury must prepare a report for public disclosure that includes certain specifically designated information

concerning all APAs, including this APA, in a form that does not reveal taxpayers identities, trade secrets, and

proprietary or confidential business or financial information.

8. Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the IRS

Associate Chief Counsel (International) to the extent reasonably practicable, before seeking alternative remedies.




25

9. Materiality. In this APA the terms material and materially will be interpreted consistently with the definition of

material facts in Revenue Procedure 2006-9, section 11.06(4).

10. Section Captions. This APAs section captions, which appear in italics, are for convenience and reference only. The

captions do not affect in any way the interpretation or application of this APA.

11. Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D

contains definitions for capitalized terms not elsewhere defined in this APA.

12. Entire Agreement and Severability. This APA is the complete statement of the Parties agreement. The Parties will

sever, delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties intent as nearly

as possible.

13. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to Taxpayer.

14. Notice. Any notices required by this APA or Revenue Procedure 2006-9 must be in writing. Taxpayer will send notices

to the IRS at the address and in the manner set forth in Revenue Procedure 2006-9, section 4.11. The IRS will send

notices to:

Taxpayer Corporation

Attn: Jane Doe, Sr. Vice President (Taxes)

1000 Any Road

Any City, USA 10000

(phone: _________)

15. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all

Parties execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an

original.

WITNESS,

The Parties have executed this APA on the dates below.

[Taxpayer Name in all caps]

By: ___________________________ Date: _______________, 20___

Jane Doe

Sr. Vice President (Taxes)

IRS

By: ___________________________ Date: _______________, 20___

John E. Hinding

Director, Advance Pricing Agreement Program




Appendix A

COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)

1. Covered Transactions.

[Define the Covered Transactions.]

2. TPM.

CUP Method

The TPM is the comparable uncontrolled price (CUP) method. The Arms Length Range of the price charged for _________

is between _______ and ___________ per unit.

CUT Method

The TPM is the CUT Method. The Arms Length Range of the royalty charged for the license of ______is between ____%

and ___ % of [Taxpayers, Foreign Participants, or other specified partys] Net Sales Revenue. [Insert definition of net

sales revenue or other royalty base.]

Resale Price Method (RPM)

The TPM is the resale price method (RPM). The Tested Partys Gross Margin for any APA Year is defined as follows: the

Tested Partys gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations section

1.4825(d)(1) and (2)) for that APA Year. The Arms Length Range is between ____% and ___ %, and the Median of the

Arms Length Range is ___%.

Cost Plus Method

The TPM is the cost plus method. The Tested Partys Cost Plus Markup is defined as follows for any APA Year: the Tested

Partys ratio of gross profit to production costs (as those terms are defined in Treasury Regulations section 1.482-3(d)

(1) and (2)) for that APA Year. The Arms Length Range is between ___% and ___%, and the Median of the Arms Length

Range is ___%.

CPM with Berry Ratio PLI

The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Partys Berry

Ratio is defined as follows for any APA Year: the Tested Partys gross profit divided by its operating expenses (as those

terms are defined in Treasury Regulations section 1.482-5(d)(2) and (3)) for that APA Year. The Arms Length Range is

between ____ and ___, and the Median of the Arms Length Range is ___.

CPM using an Operating Margin PLI

The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Partys

Operating Margin is defined as follows for any APA Year: the Tested Partys operating profit divided by its sales revenue

(as those terms are defined in Treasury Regulations section 1.482-5(d)(1) and (4)) for that APA Year. The Arms Length

Range is between ____% and ___ %, and the Median of the Arms Length Range is ___%. CPM using a Three-year Rolling Average Operating Margin PLI

The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Partys

Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Partys

operating profit (within the meaning of Treasury Regulations section 1.4825(d)(4) for that APA Year and the two

preceding years, divided by the sum of its sales revenue (within the meaning of Treasury Regulations section 1.482-5(d)

(1)) for that APA Year and the two preceding years. The Arms Length Range is between ____% and ____%, and the

Median of the Arms Length Range is ___%.

Residual Profit Split Method

The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual profit-

split mechanism].

26




3. Application of TPM.

For any APA Year, if the results of Taxpayers actual transactions produce a [price per unit, royalty rate for the Covered

Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average

Operating Margin for the Tested Party] within the Arms Length Range, then the amounts reported on Taxpayers US

Return must clearly reflect such results.

For any APA year, if the results of Taxpayers actual transactions produce a [price per unit, royalty rate] [or] [Gross

Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the

Tested Party] outside the Arms Length Range, then amounts reported on Taxpayers US Return must clearly reflect

an adjustment that brings the [price per unit, royalty rate] [or] [Tested Partys Gross Margin, Cost Plus Markup, Berry

Ratio, Operating Margin, Three-Year Rolling Average Operating Margin] to the Median.

For purposes of this Appendix A, the results of Taxpayers actual transactions means the results reflected in

Taxpayers and Tested Partys books and records as computed under US GAAP [insert another relevant accounting

standard if applicable], with the following adjustments:

(a) [The fair value of stock-based compensation as disclosed in the Tested Partys audited financial statements shall be

treated as an operating expense]; and

(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such

results shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix

A.

4. APA Revenue Procedure Treatment

If Taxpayer makes a primary adjustment under the terms of this Appendix A, Taxpayer may elect APA Revenue

Procedure Treatment in accordance with section 11.02(3) of Revenue Procedure 2006-9.

27




Appendix B

CRITICAL ASSUMPTIONS

This APAs critical assumptions are:

1. The business activities, functions performed, risks assumed, assets employed, and financial and tax accounting methods

and classifications [and methods of estimation] of Taxpayer in relation to the Covered Transactions will remain materially the

same as described or used in Taxpayers APA Request. A mere change in business results will not be a material change.

28

Appendix C

APA RECORDS AND ANNUAL REPORTS

APA RECORDS

The APA Records will consist of:

1. All documents listed below for inclusion in the Annual Report, as well as all documents, notes, work papers, records,

or other writings that support the information provided in such documents.

ANNUAL REPORT

The Annual Report will include two copies of a properly completed APA Annual Report Summary in the form of Exhibit

E to this APA, one copy of the form bound with, and one copy bound separately from, the rest of the Annual Report. In

addition, the Annual Report will include a table of contents and the information and exhibits identified below, organized as

follows.

1. Statements that fully identify, describe, analyze, and explain:

a. All material differences between any of the US Entities business operations (including functions, risks assumed,

markets, contractual terms, economic conditions, property, services, and assets employed) during the APA Year

and the description of the business operations contained in the APA Request. If there have been no material

differences, the Annual Report will include a statement to that effect.

b. All material changes in the US Entities accounting methods and classifications, and methods of estimation, from

those described or used in Taxpayers request for this APA. If any such change was made to conform to changes

in US GAAP (or other relevant accounting standards), Taxpayer will specifically identify such change. If there has

been no material change in accounting methods and classifications or methods of estimation, the Annual Report

will include a statement to that effect.

c. Any change to the Taxpayer notice information in section 14 of this APA.

d. Any failure to meet any critical assumption. If there has been no failure, the Annual Report will include a statement

to that effect.




29

e. Any change to any entity classification for federal income tax purposes (including any change that causes an entity

to be disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the CoveredTransactions or is otherwise relevant to the TPM.

f. The amount, reason for, and financial analysis of any compensating adjustments under paragraph 4 of Appendix A

and Revenue Procedure 2006-9, section 11.02(3), for the APA Year, including but not limited to:

i. the amounts paid or received by each affected entity;

ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the

specific affected line item(s) of any affected US Return; and

iii. the date(s) and means by which the payments are or will be made.

g. The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the

APA Year, as reflected on Schedule M-1 or Schedule M-3 of the US Return for the APA Year.

2 The Financial Statements, and any necessary account detail to show compliance with the TPM, with a copy of the

independent certified public accountants opinion required by paragraph 5(f) of this APA.

3 A financial analysis that reflects Taxpayers TPM calculations for the APA Year. The calculations must reconcile with and

reference the Financial Statements in sufficient account detail to allow the IRS to determine whether Taxpayer has complied

with the TPM.

4 An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities

that are parties to the Covered Transactions or are otherwise relevant to the TPM.

5 A copy of the APA.




30

Appendix D

DEFINITION

The following definitions control for all purposes of this APA. The definitions appear alphabetically below:

Term Definition

Annual Report A report within the meaning of Revenue Procedure 2006-9, section 11.01.

APAThis Advance Pricing Agreement, which is an advance pricing agreement within the

meaning of Revenue Procedure 2006-9, section 2.04.

APA Records The records specified in Appendix C.

APA RequestTaxpayers request for this APA dated _________, including any amendments or

supplemental or additional information thereto.

Covered Transaction(s) This term is defined in Appendix A.

Financial Statements Financial statements prepared in accordance with US GAAP and stated in US dollars.

Foreign Group Worldwide Group members that are not US persons.

Foreign Participants [name the foreign entities involved in Covered Transactions].

I.R.C. The Internal Revenue Code of 1986, 26 U.S.C., as amended.

Pub. L. 106-170 The Ticket to Work and Work Incentives Improvement Act of 1999.

Revenue Procedure 2006-9 Rev. Proc. 2006-9, 2006-1 C.B. 278.

Transfer Pricing Method (TPM)A transfer pricing method within the meaning of Treasury Regulations section 1.482-1(b)

and Revenue Procedure 2006-9, section 2.04.

US GAAP US generally-accepted accounting principles.

US Group Worldwide Group members that are US persons.

US Return

For each taxable year, the returns with respect to income taxes under subtitle A

that Taxpayer must make in accordance with I.R.C. section 6012. {Or substitute for

partnership: For each taxable year, the return that Taxpayer must make in accordance

with I.R.C. section 6031.}

Worldwide Group

Taxpayer and all organizations, trades, businesses, entities, or branches (whether or not

incorporated, organized in the United States, or affiliated) owned or controlled directly or

indirectly by the same interests.

Appendix E

APA ANNUAL REPORT SUMMARY FORM

The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader has supplied some of the

information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the form

as part of its Annual Report.




31

Sources

Canada

Information Circular 94-4R, International Transfer Pricing: Advance Pricing Arrangements (APAs), March 16, 2001,

Canada Revenue Agency

China

Chapter 6 and related provisions of the Implementation Measures of Special Tax Adjustments (Trial Version) (Guo

Shui Fa [2009] No. 2)

China Advance Pricing Arrangement Annual Report 2009, State Administration of Taxation, Peoples Republic of China

France

Instruction 4 A-11-05, No.110 (6/24/2005) Instruction relative la garantie prvue larticle L.80 B 7e du Livre des

Procdures Fiscales et la Procdure daccord pralable unilatral en matire de prix de transfert

Germany

Information on bi- or multilateral mutual agreement procedures under double taxation agreements for reaching

Advance Pricing Agreements (APA) aimed at granting binding advance approval of transfer prices agreed between

international associated enterprises, Federal Ministry of Finance, October 5, 2006. (File ref: IV B 4-S 1341 38/06)

Japan

Commissioners Directive on the Operation of Transfer Pricing (Administrative Guidelines), National Tax Agency of

Japan, June 1, 2001, amended June 25, 2007.

APA Program Report 2010, National Tax Agency of Japan

United Kingdom

Statement of Practice on Advance Pricing Agreements, issued by H.M. Revenue and Customs (HMRC), interpreting

Sections 218-230 of the Taxation (International and Other Provisions) Act 2010

United States

Revenue Procedure 2006-9, 2006-1 C.B. 278

Announcement and Report Concerning Advance Pricing Agreements, March 29, 2011




32

Key contacts

Steven D. Harris

Steven D. Harris currently leads the APA initiative of KPMG in

India.

Steven came to KPMG in 1998 from the IRS APA Program,

where he served as team leader, branch chief and acting

director. During his tenure with the IRS, he also served as

the APA Coordinator for Canadian and Japanese cases. While

with the IRS, Mr. Harris participated in numerous bilateral

APA discussions and negotiations with tax authorities around

the world (including Japan, Canada, UK, Mexico, Germany) to

resolve transfer pricing disputes. From 2000 until 2009,

Mr. Harris was the Practice Leader for KPMGs Global Transfer

Pricing Resolution Network, which provides assistance

to member firm clients on resolving cross-border transfer

pricing controversies through mechanisms such as Advance

Pricing Agreements and Competent Authority.

Rohan K. Phatarphekar is a partner and is the National Leader

of KPMG in Indias Transfer Pricing Practice. Mr. Phatarphekar

has been rated in the Top 10 Transfer Pricing advisers in India

in a survey carried out amongst Indian taxpayers in January2011 by International Tax Review (ITR).

Rohan leads a team of over 175 transfer pricing professionals

spread across seven locations in India. He has been advising

multinational companies on transfer pricing issues from 1997

much before the transfer pricing regulations were introduced

in India in 2001. The annual Euromoney publication, World

Tax 2011 acknowledged that KPMG in India has a strong

reputation for Transfer Pricing Services under the leadership

of Mr. Phatarphekar. Also, KPMG in India has been awarded

the India Transfer Pricing Firm of the Yearby ITR.

Mr. Phatarphekar has serviced clients across various

industries including Pharma, IT, ITES, Infrastructure, FinancialServices, Electronics, FMCG etc.

Contributors to the paper:

Steven D. Harris, Rohan K. Phatarphekar and Carolyn D. Fanaroff

Rohan K. Phatarphekar




KPMG in India

Bangalore

Maruthi Info-Tech Centre

11-12/1, Inner Ring Road

Koramangala, Bangalore 560 071

Tel: +91 80 3980 6000

Fax: +91 80 3980 6999

Chandigarh

SCO 22-23 (Ist Floor)

Sector 8C, Madhya Marg

Chandigarh 160 009

Tel: +91 172 393 5777/781

Fax: +91 172 393 5780

Chennai

No.10, Mahatma Gandhi Road

Nungambakkam

Chennai 600 034

Tel: +91 44 3914 5000

Fax: +91 44 3914 5999

Delhi

Building No.10, 8th Floor

DLF Cyber City, Phase II

Gurgaon, Haryana 122 002Tel: +91 124 307 4000

Fax: +91 124 254 9101

Hyderabad

8-2-618/2

Reliance Humsafar, 4th Floor

Road No.11, Banjara Hills

Hyderabad 500 034

Tel: +91 40 3046 5000

Fax: +91 40 3046 5299

Kochi

4/F, Palal Towers

M. G. Road, Ravipuram,

Kochi 682 016

Tel: +91 484 302 7000

Fax: +91 484 302 7001

Kolkata

Infinity Benchmark, Plot No. G-1

10th Floor, Block EP & GP, Sector V

Salt Lake City, Kolkata 700 091

Tel: +91 33 44034000

Fax: +91 33 44034199

Mumbai

Lodha Excelus, Apollo Mills

N. M. Joshi Marg

Mahalaxmi, Mumbai 400 011

Tel: +91 22 3989 6000

Fax: +91 22 3983 6000

Pune

703, Godrej Castlemaine

Bund Garden

Pune 411 001Tel: +91 20 3058 5764/65

Fax: +91 20 3058 5775


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The information contained herein is of a general nature and is not intended to address the circumstances of anyparticular individual or entity. Although we endeavour to provide accurate and timely information, there can beno guarantee that such information is accurate as of the date it is received or that it will continue to be accurate

in the future. No one should act on such information without appropriate professional advice after a thoroughi i f h i l i i

Contact us

Steven D. Harris

Senior Principal

Global Transfer Pricing Services

KPMG in US

T: +1 212 872 6718

E: [email protected]

Rohan K. Phatarphekar

Executive Director and National Head

Global Transfer Pricing Services

KPMG in India

T: +91 22 3090 2000

E: [email protected]

www.kpmg.com/in

Documents

Advance Pricing Agreement Considerations for India