The Indian Tax Authority announced that India and the United States have reached agreement on the terms and conditions of the first bilateral advance pricing agreement (APA) between the countries. The IRS had only begun accepting bilateral APA requests in February 2016 (see IR-2016-13) after making significant progress on Competent Authority (CA) double tax cases, sometimes also referred to as Mutual Agreement Procedure (MAP) cases. The verbal agreement between the two governments on terms and conditions for this bilateral APA concluded approximately six months after the application was filed with the IRS. The written agreement should be finalized in the next two months.

We understand from the governments that the APA was pending in India as a unilateral APA and then converted into a bilateral APA earlier this year when the IRS began accepting such requests. We also understand that the APA term is the maximum allowed under Indian law (five years). Moreover, as is expected in a bilateral negotiation process, we understand the mark-up on total cost to which the countries agreed is lower than the rate that was offered in the Indian unilateral APA process. The APA should be eligible for an expedited renewal process in the future.

In addition to the first bilateral APA, the two governments reached agreement on a significant number of CA / MAP cases at the meeting. Based on the Indian press release, the governments resolved double tax/transfer pricing disputes covering over 66 tax years. (India and the US count cases in terms of years.) Accordingly, India and the US would count an individual CA/MAP request for assistance covering three years as three cases. In contrast, with other countries, the IRS would count a request for CA assistance covering three years as just one case. Also, the governments resolved double tax/treaty disputes involving issues such as withholding taxes and permanent establishment, covering over 40 years.

Prior to this meeting, the IRS and Indian Tax Authority had resolved numerous other CA/MAP cases through other meetings and telephone discussions. The CA/MAP cases primarily involved Indian subsidiaries providing various services to US Parent companies. These services included information technology (IT), IT enabled, business process, call center, software development and testing, and various other services. These types of cases are also known as "framework cases" as they involve routine services being performed in India for the benefit of US companies and are generally resolved at approximately total cost, plus 15%. There are also other pending "non-framework" CA/MAP cases involving management fees and royalties being charged by US companies to Indian companies.

The resolution of a bilateral APA and the numerous CA/MAP cases is an outstanding achievement for both tax authorities considering that, just two years ago, the governments had terminated formal discussions and the number of CA/MAP cases was stacking up with no relief in sight.

Companies from various industries, including financial services, software, semiconductor, insurance, auto, consumer products and healthcare, have already submitted or are close to submitting their bilateral APA requests to the IRS APMA program. Many companies that have already filed unilateral APAs in India are now converting those unilateral APAs to bilateral APAs, while others have filed new APA applications in both countries. For those filing new APA applications, it is important to submit the Indian application before March 31, 2017, in order for the APA term to start as of April 1, 2017 (tax year ending March 31, 2018). US taxpayers wishing to include the 2016 tax year in a bilateral APA request will need to submit their applications to the IRS APMA program before filing their 2016 income tax returns.

The Indian APA Program continues to be successful, with over 700 cases filed and over 100 completed APAs. In addition, the Indian Tax Authority announced the completion of three bilateral APAs with the UK. The bilateral APAs were negotiated several months ago and covered management fees charged to Indian companies from UK companies in the telecommunications industry.

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