India signed its first batch of five advance pricing agreements (APAs) with multinational companies on Monday, a move that will reduce transfer pricing litigation and provide certainty to companies having a presence in India.

APA is an agreement between a taxpayer and the tax department on a transfer-pricing procedure for a particular set of transactions.

Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies to ensure that a fair price—one that would have been charged to an unrelated party—is levied.

It has been an area of increasing dispute with the most recent round of completed transfer pricing seeing adjustments of around $9.5 billion made by the tax department.

India had notified APA rules in August 2012 but negotiations between the companies and the tax department are a long process. The tax department has more than 140 APA applications pending with it.

The unilateral APAs have been signed for five years, the tax department said in a statement.

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