Transfer Pricing –Roll-Back Provision (Advance Pricing Agreement)
Introduction: In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.
In previous part we have discussed how assessee can enter into Advance Pricing Agreement, in this part we will provision relating to rollback in advance pricing agreement
In rollback provision, it has been prescribed that it will determine Arm’s length price for transaction to be entered by assessee during relevant financial year and may be extended up to preceding four financial years.
What are the conditions that assessee is required to fulfil for filling application for rollback provisions?
What are the cases where assessee will not be able to apply for roll-back provisions?
Assessee will not able to apply for rollback provision if, the determination of arm’s length price of the said international transaction for the said year has been subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of such appeal at any time before signing of the agreement or if after entering for rollback provision it has effect of reducing the total income or increasing the loss as declared by assessee in the return of income of the said year.
Within what time assessee is required to furnish application and what will be the fees for it?
Assessee who wants to apply for rollback provision is required to apply in form 3CEDA with filling of application for advance pricing agreement along with additional fees of Rs. 5,00,000/-
What if for year for which rollback provisions are applied are filed belatedly or has been revised?
For applying for rollback provision one of the conditions that assessee is required to fulfil is return of Income has been filed by assessee withing due date. If original return is filed within due date than assessee can apply for rollback provision even if the said has been revised by assessee as on later date. However, if the related has been filed belatedly than in that case assessee will not be able to apply for said provision for said financial year.
Whether assessee is required to apply for rollback provisions for all four years or applicant can choose the years out of the block of four years?
The applicant does not have the option to choose the years for which it wants to apply for rollback. The applicant has to either apply for all the four years or not apply at all. However, it may happen that the international transaction for which such agreement is entered has not happened in all four year, in that case he is required to apply only for those year for which transaction has been entered.
What if transaction for which rollback provision is applied is been subject matter of appeal or for which ITAT has already issued order?
It is very well-established position of law that if the transaction for which rollback provision is applied by assessee is been considered under the order of Income Tax Appellate Tribunal (ITAT) than assessee will not be able to apply for rollback provision for that transaction as ITAT is the final fact-finding authority and hence, on factual issues, the matter has already reached finality in that year. However, if the ITAT has not decided the matter and has only set aside the order for fresh consideration of the matter by the lower authorities with full discretion at their disposal, then assessee can apply for rollback provisions for that year.
What if there is merger of entities and one of the entities has applied for rollback provisions?
As per provision, agreement is entered by department and assessee he principle to be followed in case of merger is that the person (company) who makes the application for advance pricing agreement will only be eligible for the rollback provisions in respect of international transactions undertaken by it in rollback years. Other assessee who have merged with this entity would not be eligible for the rollback provisions.
Illustration: D Ltd, C Ltd and E Ltd merge to form D Ltd, D Ltd is also applicant of advance pricing agreement. After merger who will be eligible for rollback provisions?
In this case transaction entered by D Ltd. will only be eligible for rollback provision. If in case they had form new company instead of merging with D Ltd. than none of the companies would have been eligible for it.
The same provision is applicable in case of demerger, and in that after demerger only the main entity who has applied before demerger would be eligible for rollback provisions.
Through this article we have mainly covered questions that may arises in relation to rollback provisions under advance pricing agreement.
An Important point that shall be noted by assessee is, department has described Safe Harbour, In the said rules department has described various business and type of transaction for which if entity is declaring profit as determined in said rules, then department will not undertake any proceedings and Arm’s Length price determined by assessee will be accepted by department without any additions.