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The Central Board of Direct Taxes amends the Income-tax Rules, 1962, to introduce the Advance Pricing Agreement Scheme under sections 92CC and 295 of the Income-tax Act, 1961. Any person who has undertaken an international transaction or contemplates an international transaction is eligible to apply for an agreement. Applicants must request a pre-filing consultation in Form No. 3 CEC before filing an application in Form No. 3 CED with the requisite fee. The scheme provides procedures for unilateral, bilateral, and multilateral advance pricing agreements, annual compliance reports in Form 3 CEF, compliance audits, and agreement revisions or cancellations.
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[TO BE PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (ii)]
GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE [CENTRAL BOARD OF DIRECT TAXES]
Notification
New Delhi, the 30th day of August, 2012
INCOME-TAX
S.O.2005(E).- In exercise of the powers conferred by sub-section (9) of section 92CC read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
(1). These rules may be called the Income-tax (10th Amendment) Rules,
(2). They shall come into force on the date of their publication in the
official Gazette.
(a) after rule 10E, the following rule shall be inserted, namely.-
“Advance Pricing Agreement Scheme
Meaning of expressions used in matters in respect of advance pricing agreement. 10F For the purposes of this rule and rules 10G to 10T,–
(a) ‘agreement’ means an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in sub-section (1) of section 92CC of the Act;
(b) “application” means an application for advance pricing agreement made under rule 10 I ;
(c) “bilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44 GA between the competent authority in India with the competent authority in the other country regarding the most appropriate transfer pricing method or the arms’ length price;
(d) “competent authority in India” means an officer authorised by the Central Government for the purpose of discharging the functions as such for matters in respect of any agreement entered into under section 90 or 90A of the Act;
(e) “covered transaction” means the international transaction or transactions for which agreement has been entered into;
(f) “critical assumptions” means the factors and assumptions that are so critical and significant that neither party entering into an agreement will continue to be bound by the agreement, if any of the factors or assumptions is changed;
(g) “most appropriate transfer pricing method” means any of the transfer pricing method, referred to in sub-section (1) of section 92C of the Act, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors prescribed by the Board under rule 10B and 10C;
(h) “multilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authorities in the other countries regarding the most appropriate transfer pricing method or the arms’ length price;
(i) “tax treaty” means an agreement under section 90, or section 90A, of the Act for the avoidance of double taxation;
(j) “team” means advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Director General of Income Tax (International Taxation);
(k) “unilateral agreement” means an agreement between the Board and the applicant which is neither a bilateral nor multilateral agreement.
Persons eligible to apply
10G Any person who –
shall be eligible to enter into an agreement under these rules.
Pre-filing Consultation
10H (1) Every person proposing to enter into an agreement under these rules shall, by an application in writing, make a request for a pre-filing consultation.
(2) The request for pre-filing consultation shall be made in Form No. 3 CEC to the Director General of Income Tax (International Taxation).
(3) On receipt of the request in Form No. 3 CEC, the team shall hold pre- filing consultation with the person referred to in rule 10G.
(4) The competent authority in India or his representative shall be associated in pre-filing consultation involving bilateral or multilateral agreement.
(5) The pre-filing consultation shall, among other things,-
(6) The pre-filing consultation shall–
Application for advance pricing agreement
10 I (1) Any person, who has entered into a pre-filing consultation as referred to in rule 10H may, if desires to enter into an agreement furnish an application in Form No. 3 CED alongwith the requisite fee.
(2) The application shall be furnished to Director General of Income Tax (International Taxation) in case of unilateral agreement and to the competent authority in India in case of bilateral or multilateral agreement. (3) Application in Form No. 3 CED may be filed by the person referred to in rule 10G at any time–
(4) Every application in Form No. 3 CED shall be accompanied by the proof of payment of fees as specified in sub-rule (5).
(5) The fees payable shall be in accordance with following table based on the amount of international transaction entered into or proposed to be undertaken in respect of which the agreement is proposed:
| Amount of international transaction entered into or proposed to be undertaken in respect of which agreement is proposed during the proposed period of agreement. | Fee |
|---|---|
| Amount not exceeding Rs. 100 crores | 10 lacs |
| Amount not exceeding Rs. 200 crores | 15 lacs |
| Amount exceeding Rs. 200 crores | 20 lacs |
Withdrawal of application for agreement 10 J (1) The applicant may withdraw the application for agreement at any time before the finalisation of the terms of the agreement.
(2) The application for withdrawal shall be in Form No. 3CEE.
(3) The fee paid shall not be refunded on withdrawal of application by the applicant. Preliminary processing of application
10 K (1) Every application filed in Form No. 3CED shall be complete in all respects and accompanied by requisite documents.
(2) If any defect is noticed in the application in Form No. 3CED or if any relevant document is not attached thereto or the application is not in accordance with understanding reached in pre-filing consultation referred to in rule 10H, the Director General of Income-tax (International Taxation) (for unilateral agreement) and competent authority in India (for bilateral or multilateral agreement) shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application.
(3) The applicant shall remove the deficiency or modify the application within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf, may be extended, so however, that the total period of removal of deficiency or modification does not exceed thirty days.
(4) The Director General of Income Tax (International Taxation) or the competent authority in India, as the case may be, on being satisfied, may pass an order providing that application shall not be allowed to be proceeded with if the application is defective and defect is not removed by applicant in accordance with sub-rule (3).
(5) No order under sub-rule (4) shall be passed without providing an opportunity of being heard to the applicant and if an application is not allowed to be proceeded with, the fee paid by the applicant shall be refunded.
Procedure
10 L (1) If the application referred to in rule 10K has been allowed to be proceeded with, the team or the competent authority in India or his representative shall process the same in consultation and discussion with the applicant in accordance with provisions of this rule.
(2) For the purpose of sub-rule (1), it shall be competent for the team or the competent authority in India or its representative to–
(i) hold meetings with the applicant on such time and date as it deem fit;
(ii) call for additional document or information or material from the applicant;
(iii) visit the applicant’s business premises; or
(iv) make such inquiries as it deems fit in the circumstances of the case.
(3) For the purpose of sub-rule (1), the applicant may, if he considers it necessary, provide further document and information for consideration of the team or the competent authority in India or his representative.
(4) For bilateral or multilateral agreement, the competent authority shall forward the application to Director General of Income Tax (International Taxation) who shall assign it to one of the teams. (5) The team, to whom the application has been assigned under sub-rule (4), shall carry out the enquiry and prepare a draft report which shall be forwarded by the Director General of Income Tax (International Taxation) to the competent authority in India. (6) If the Applicant makes a request for bilateral or multilateral agreement in its application, the competent authority in India shall in addition to the procedure provided in this rule invoke the procedure provided in the rule 44 GA.
(7) The Director General of Income Tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) and the applicant shall prepare a proposed mutually agreed draft agreement enumerating the result of the process referred to in sub-rule (1) including the effect of the arrangement referred to in sub-rule (5) of rule 44GA which has been accepted by the applicant in accordance with sub-rule (8) of the said rule.
(8) The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.
(9) Once an agreement has been entered into the Director General of Income Tax (International Taxation) or the competent authority in India, as the case may be, shall cause a copy of the agreement to be sent to the Commissioner of Income Tax having jurisdiction over the assessee.
Terms of the agreement
10 M (1) An agreement may among other things, include –
(i) the international transactions covered by the agreement;
(ii) the agreed transfer pricing methodology, if any;
(iii) determination of arm’s length price, if any;
(iv) definition of any relevant term to be used in items (ii) or (iii);
(v) critical assumptions;
(vi) the conditions if any other than provided in the Act or these rules.
(2) The agreement shall not be binding on the Board or the assessee if there is a change in any of critical assumptions or failure to meet conditions subject to which the agreement has been entered into.
(3) The binding effect of agreement shall cease only if any party has given due notice of the concerned other party or parties.
(4) In case there is a change in any of the critical assumptions or failure to meet the conditions subject to which the agreement has been entered into, the agreement can be revised or cancelled, as the case may be.
(5) The assessee which has entered into an agreement shall give a notice in writing of such change in any of the critical assumptions or failure to meet conditions to the Director General of Income Tax (International Taxation) as soon as it is practicable to do so.
(6) The Board shall give a notice in writing of such change in critical assumptions or failure to meet conditions to the assessee, as soon as it comes to the knowledge of the Board.
(7) The revision or the cancellation of the agreement shall be in accordance with rules 10Q and 10R respectively.
Amendments to Application
10 N (1) An applicant may request in writing for an amendment to an application at any stage, before the finalisation of the terms of the agreement.
(2) The Director General of Income Tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) may, allow the amendment to the application, if such an amendment does not have effect of altering the nature of the application as originally filed.
(3) The amendment shall be given effect only if it is accompanied by the additional fee, if any, necessitated by such amendment in accordance with fee as provided in rule 10 I.
Furnishing of Annual Compliance Report 10 O (1) The assessee shall furnish an annual compliance report to Director General of Income Tax (international Taxation) for each year covered in the agreement.
(2) The annual compliance report shall be in Form 3CEF.
(3) The annual compliance report shall be furnished in quadruplicate, for each of the years covered in the agreement, within thirty days of the due date of filing the income tax return for that year, or within ninety days of entering into an agreement, whichever is later.
(4) The Director General of Income Tax (International Taxation) shall send one copy of annual compliance report to the competent authority in India, one copy to the Commissioner of Income Tax who has the jurisdiction over the income-tax assessment of the assessee and one copy to the Transfer Pricing Officer having the jurisdiction over the assessee.
Compliance Audit of the agreement
10 P (1) The Transfer Pricing Officer having the jurisdiction over the assessee shall carry out the compliance audit of the agreement for each of the year covered in the agreement.
(2) For the purposes of sub-rule(1), the Transfer Pricing Officer may require –
(i) the assessee to substantiate compliance with the terms of the agreement, including satisfaction of the critical assumptions, correctness of the supporting data or information and consistency of the application of the transfer pricing method;
(ii) the assessee to submit any information, or document, to establish that the terms of the agreement has been complied with.
(3) The Transfer Pricing Officer shall submit the compliance audit report, for each year covered in the agreement, to the Director General of Income Tax (International Taxation) in case of unilateral agreement and to the competent authority in India, in case of bilateral or multilateral agreement, mentioning therein his findings as regards compliance by the assessee with terms of the agreement.
(4) The Director General of Income Tax (International Taxation) shall forward the report to the Board in a case where there is finding of failure on part of assessee to comply with terms of agreement and cancellation of the agreement is required.
(5) The compliance audit report shall be furnished by the Transfer Pricing Officer within six months from the end of the month in which the Annual Compliance Report referred to in rule 10 O is received by the Transfer Pricing Officer.
(6) The regular audit of the covered transactions shall not be undertaken by the Transfer Pricing Officer if an agreement has been entered into under rule 10L except where the agreement has been cancelled under rule 10R.
Revision of an agreement
10 Q (1) An agreement, subsequent to it having been entered into, may be revised by the Board, if.-
(a) there is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into; (b) there is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non binding ; or (c) there is a request from competent authority in the other country requesting revision of agreement, in case of bilateral or multilateral agreement.
(2) An agreement may be revised by the Board either suo-moto or on request of the assessee or the competent authority in India or the Director General of Income Tax (International Taxation).
(3) Except when the agreement is proposed to be revised on the request of the assessee, the agreement shall not be revised unless an opportunity of being heard has been provided to the assessee and the assessee is in agreement with the proposed revision. (4) In case the assessee is not in agreement with the proposed revision the agreement may be cancelled in accordance with rule-10R. (5) In case the Board is not in agreement with the request of the assessee for revision of the agreement, the Board shall reject the request in writing giving reason for such rejection.
(6) For the purpose of arriving at the agreement for the proposed revision, the procedure provided in rule 10 L may be followed so far as they apply.
(7) The revised agreement shall include the date till which the original agreement is to apply and the date from which the revised agreement is to apply. Cancellation of an agreement
10 R (1) An agreement shall be cancelled by the Board for any of the following reasons:
(i) the compliance audit referred to in rule 10P has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement;
(ii) the assessee has failed to file the annual compliance report in time;
(iii) the annual compliance report furnished by the assessee contains material errors; or
(iv) the agreement is to be cancelled under sub-rule (4) of rule 10Q.
(2) The Board shall give an opportunity of being heard to the assessee, before proceeding to cancel an application.
(3) The competent authority in India shall communicate with the competent authority in the other country or countries and provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.
(4) The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation and for non acceptance of assessee’s submission, if any.
(5) The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.
(6) The order under the Act, declaring the agreement as void ab initio, on account of fraud or misrepresentation of facts, shall be in writing and shall provide reason for such declaration and for non acceptance of assessee’s submission, if any.
(7) The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the assessee.
Renewing an agreement 10 S Request for renewal of an agreement may be made as a new application for agreement, using the same procedure as outlined in these rules except pre filing consultation as referred to in rule 10H.
