Transfer Pricing News

published on 30 April 2025 I reading time approx. 2 minutes

Important Transfer Pricing Updates and Judicial Rulings

1. Scope of ‘Safe Harbour Rules’ expanded:

The Central Board of Direct Taxes (‘CBDT’) has announced important amendments to the scope of the Safe Harbour Rules under Section 92CB of the Income-tax Act, 1961. In essence, these Rules are designed to simplify transfer pricing compliance, reduce disputes, and provide greater certainty to taxpayers by accepting certain declared income as being at arm’s length.

Amendment Applicable from AY 2025-26 & 2026-27

Increased Threshold Limit:

Before: Safe Harbour Rules cover international transactions involving software development services, IT-enabled services (‘ITES’), knowledge process outsourcing (‘KPO’) and contract research and development (‘R&D’), up to a value of such transactions not exceeding INR 200 crore.
Now: The said limit has been revised to INR 300 crore, which would now cover more enterprises to benefit from this regime.

2. Expanded Definition of Core Auto Components:

Before: The definition currently includes manufacture of core auto parts like engines, transmission, etc., for traditional vehicle technologies.
Now: The definition now will cover manufacturing of lithium-ion batteries used in electric and hybrid vehicles, acknowledging the rapid growth of the ecosystem of electric mobility sector.

These changes reflect the CBDT’s recognition of evolving business models, particularly in the electric vehicles industries. In addition, the revised thresholds will also provide option to more taxpayers to opt for Safe Harbour Rules.

(For more details refer to our article titled - " Recent Amendment to India’s Safe Harbour Rules" available on LinkedIn)

2. Record-Breaking Year for Advance Pricing Agreements (‘APAs’):

In a major achievement, the CBDT signed a record 174 APAs with taxpayers during FY 2024-25. With this milestone, the cumulative number of APAs signed since the programme’s inception has reached 815, comprising:

615 Unilateral APAs (‘UAPA’)
199 Bilateral APAs (‘BAPA’)
1 Multilateral APA (‘MAPA’)

In principle, the APA programme helps businesses gain upfront certainty on transfer pricing methods for international transactions, typically for five years. BAPAs also help avoid double taxation by involving both countries in the agreement process.

Highlights from FY 2024-25:

A record 65 BAPAs signed—the highest in any single year.
BAPAs concluded with key treaty partners such as Australia, Japan, South Korea, the Netherlands, New Zealand, Singapore, the UK, and the USA.
On 27 March 2025, a record 34 APAs were signed in a single day.

This record-setting year reflects India’s strong commitment to a stable and transparent tax environment, encouraging multinational enterprises to operate with greater confidence.

3. Hon’ble Mumbai Income Tax Appellate Tribunal (‘ITAT’) applies outcome reached in APA even to non-covered Associated Enterprises (‘AEs’), considering the same nature of international transactions:

In a recent judgement by the Mumbai ITAT in the case of Vodafone India Services Private Ltd [ITA 4710/MUM/2024], the Hon’ble ITAT reaffirmed significance of an agreement reached under APA and adoption of same arm’s length price (‘ALP’) or ALP methodology for international transactions even with non-covered AEs.

In the captioned case, an Indian group entity of Vodafone was providing ITeS services to its AEs in United Kingdom (‘UK’) and United Sates of America (‘USA’), wherein, it faced significant Transfer Pricing adjustments during tax assessment proceedings.

Subsequently, while the case was being litigated before judicial forums, the taxpayer entered in a BAPA covering transactions with its AE in UK. The APA fixed the arm’s length margin for ITeS at 16 per cent on costs.

While passing its judgment, the Hon’ble Tribunal accepted the taxpayer’s plea to extend the BAPA margin to similar transactions with its US AEs, noting no functional differences between the transactions with US and UK AEs and relying on past judicial precedents on significance of outcome reached in APA in taxpayer’s own cases.

This ruling reiterates the binding nature of APAs on covered transactions and affirms the extension of APA principles to similar transactions with other AEs where functions, assets, and risks are comparable.