Advance price agreement rules by July 1 - Indian Express

Advance price agreement rules by July 1 - Indian Express

• Transfer price refers to the amount used in accounting of a company for transfer of goods or services between different branches of a company (or from one company to another which belongs to the same group.) 
• Transfer pricing is a mechanism for distributing revenue and allocation of resources between different divisions which jointly develop, manufacture and market products and services.
•  Transfer pricing rules in most countries are based on “arm’s length principle" according to which the transfer price should be similar to the price that would be charged if the product were sold to outside customers or purchased from outside vendors (i.e. at market price). 
• An APA is an agreement between a taxpayer and tax authority concerning the TP method functional to a taxpayer's inter-company transactions.
•  Through the APA, the tax authority accept not to look for a TP adjustment for enclosed transactions as long as the taxpayer obey to the terms and conditions as agreed by the APA.

 Usually if two branches of a company are located in different countries, then they manipulate transfer pricing to show more profit in a country which has less taxes. Thus it leads to loss of tax revenue for higher taxing country like India.