The advance pricing agreement program was an important dispute resolution mechanism in the Indian direct taxation institution. There are three types of pre-price agreements – unilateral, bilateral and multilateral. The credibility of a tax authority depends to a large extent on the effectiveness of its dispute resolution mechanism. Pre-price agreements have played an important role in preventing avoidable litigation. The 2012 Finance Act introduced the Advance Pricing Agreement (APA). When the provisions were introduced, the then Minister of Finance stated: “In a globalized economy, with increasing cross-border production chains and increasing trade within companies of the same group, Advance Pricing Agreement (APA) can significantly reduce tax disputes and provide tax security to foreign investors.” In particular, pre-price agreements aim to avoid transfer pricing disputes by agreeing in advance on the price of arm lengths. The trial provides that taxpayers and their lawyers may meet with experts from the APA department to verify whether or not the relevant facts in their case are eligible for an APA. As part of an APA assessment, the subject and the tax authorities generally verify the relevant facts, discuss the appropriate method of transfer pricing for these facts, and then agree that the subject will follow him for the next 4 to 5 years and declare it as a length/price, unless exceptional circumstances or events occur. The evaluation of the APP application takes at least 24 to 36 months, depending on whether the agreement is unilateral, bilateral or multilateral and the transaction between the related parties is difficult. To address this problem, the Turkish tax administration has recently introduced some timely deadlines for concluding APAs. In the case of a unilateral APA, the entire APA process is completed within nine months of the date the written application is recorded in the Turkish tax administration`s registers; bilateral and multilateral APA, the duration is 18 months. In the event of a delay, the Turkish tax authorities or the relevant tax authorities and taxpayers may decide to extend the common term. APAs ensure taxpayer security, reduce disputes, increase tax revenues and make the country an attractive destination for foreign investment.
These agreements would be binding on both the taxpayer and the government. They also reduce the cost of complaints and litigation. Taking all factors into account good preparation before the application of the APA, the efficient use of time and the development of a specific strategy are all essential.