Transfer Pricing Updates

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Transfer Pricing Updates

Important Transfer Pricing Amendments

Alignment of Advance Pricing Agreements in light of amended Safe Harbour Rules

In light of the recent amendments to Safe Harbour Rules and Advance Pricing Agreements (‘APAs’), the Central Board of Direct Taxes (‘CBDT’) has issued an office memorandum vide F.No.500/3/2014-APA dated 24 March 2026, to include an additional critical assumption in all the Unilateral APA agreements to be signed, enabling applicants to opt for revised safe harbour rules. The memorandum provides that where an applicant opts for Safe Harbour, pursuant to changes in prescribed safe harbour rates/margins, in respect of any international transaction for any APA year, the Agreement shall be revised as per provisions of Rule 10Q. Consequently, such international transaction shall be excluded from the scope of Agreement for that year and subsequent APA years covered in the Agreement. This clarification enhances flexibility for taxpayers to transition to Safe Harbour provisions while ensuring that APAs remain consistent with revised regulatory frameworks

Advance Pricing Agreement Statistics for FY 2025-26

In a major achievement, the CBDT signed a record 219 APAs with taxpayers during FY 2025-26. With this milestone, the cumulative number of APAs signed since the programme’s inception has crossed the 1000 mark and reached 1034, comprising:

• 750 Unilateral APAs (‘UAPA’)
• 284 Bilateral APAs (‘BAPA’)

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 2025-26

• A record 84 BAPAs signed, the highest in any single year.
• BAPAs concluded with key treaty partners such as the US, Finland, the UK, Singapore, Japan, South Korea, Australia, Denmark, Sweden, France, Indonesia, Ireland and New Zealand.
• In FY 2025-26, India has signed its first BAPAs with France, Ireland, Indonesia and Sweden.

This record-setting year reflects India’s strong commitment to a stable and transparent tax environment, encouraging multinational enterprises to operate with greater confidence. The APA Scheme, along with the Safe Harbour Rules, seeks to provide certainty in transfer pricing by prescribing methodologies and determining the arm’s length price of international transactions in advance for a period of up to five years.

Judicial Rulings

Hon’ble Delhi ITAT backs Berry Ratio for telecom PLI

The assessee i.e. Verizon Communication India Pvt Ltd (‘VCIPL’) is part of Verizon Group which provides customised telecommunications connectivity and IT solutions to multinational customers and government agencies. VCIPL operates as a part of Verizon Enterprise Solution business segment of Verizon Group and is engaged in the business of providing telecommunication services in India.

The Verizon Group operates in the form of a hub and spoke business model, which is used in context of multilocation service provisioning businesses. In this case, Verizon US (AE) serves as a hub, acting as sole entrepreneur responsible for taking management responsibilities and VCIPL, a spoke and functioning as a delivery centre responsible for providing telecommunication services to its clients in their local jurisdictions. Accordingly, VCIPL is characterised as a limited function and risk bearing service provider and is remunerated under Low-Risk Model (LRM) structure which provides assured return to achieve arm’s length price, in this case being, operating margin of 11% of sales or 14% of value-added costs, whichever is higher.

In earlier years, the assessee had consistently adopted the LRM, which was also accepted by the TPO. However, in the absence of any change in facts and circumstances and considering the presence of excess profits in the hands of VCIPL, the TPO held that the contractual transfer or re-assignment of risks could not be recognized. Accordingly, the transfer of non-routine business profits back to the entrepreneur is not acceptable. Furthermore, the TPO rejected the use of the Berry Ratio as the PLI selected by the assessee to substantiate its characterization under the LRM, on the grounds that the assessee was employing significant intangibles and fixed assets.

As the case went before the Hon’ble ITAT, it held that the application of TP principles has to be dealt on the basis of harmonious application and proper appropriation of facts. In the present case, the assessee merely completes the services initiated by its group entities and facilitates the execution of the overall transaction. Given that the assessee performs limited functions and only adds incremental value to the services rendered by its group entities to end customers, the ITAT concluded that the Berry Ratio is an appropriate PLI in the facts of the case.

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