Alternate Dispute Resolution Mechanism – Advance Pricing Agreement (‘APA’)

Alternate Dispute Resolution Mechanism – Advance Pricing Agreement (‘APA’)


  • An APA would be an agreement between the Central Board of Direct Taxes (CBDT) and any ‘person’ determining the arm’s length price (“ALP”) or specifying the manner in which the ALP is to be determined in relation to an international transaction
  • Flexibility to determine ALP using unspecified method/ adjustments /variations, as necessary
  • Valid for the periods specified in the APA, and up to a maximum period of 5 years
  • APA can be applied before the taxpayer enters into the international transaction(s), or before the beginning of a financial year
  • Flexibility to opt for Unilateral or Bilateral or Multi-lateral APA - Taxpayers may enter into APAs with more than one tax authority – i.e., bilateral or multilateral APAs. Unilateral APAs involve agreements between only the taxpayer and one government.
  • Binding on taxpayer and tax authority, unless there is a change in law / facts
  • APA rollback mechanism has been introduced by Finance Act 2014 

    Concerns on domestic tax law appeal process

  • Time consuming and several tiers of appellate proceedings
  • Appeal by tax authorities in case of favorable resolution at lower levels