As companies bear the brunt of the coronavirus-led economic disruptions, multinational companies (MNCs) have reached out to the direct tax board seeking clarity on tax agreements. These companies have sought clarity on revising the advance pricing agreements (APAs) as preset margins and critical assumptions have become irrelevant due to supply-chain disruption, relocation of persons, abnormal expenses and risk assumed etc.
While all agreements might not be affected as APAs are long-term in nature, the government is likely to look into the specific changes documented by the companies. The industry has also asked the income tax department to issue a directive on the modification of APAs during the pandemic, as mentioned in a report in Business Standard.
APAs are ahead-of-time understanding between a taxpayer and tax authority on an appropriate transfer-pricing methodology. It is used to determine the pricing of future international transactions of the taxpayer.
Most sectors, except IT, have instances where APA authorities have been approached for a revision. A case-by-case approach is being applied. Travel and hospitality are among the most impacted sectors to move APA authorities for a revision of agreements, stated the daily.
According to the I-T rules, an APA would be revised if there is a change in critical assumptions or failure to meet a condition that has been specified in the agreement. Documentation would be critical in such scenarios. An official told the daily that the government would consider if aforementioned changes are taking place and the company has necessary documentation to offer.
Meanwhile, the companies are also seeking clarity on whether digital documentation would be accepted by the tax authorities as travel restrictions are in place due to lockdown.