India–US Advance Pricing Agreement – APA Programme Boosting Trade and Tax Certainty

Sanket Agarwal – [2025] 178 taxmann.com 293 (Article)

As tariffs cast a shadow on one of the world’s most dynamic trade partnerships, India’s Advance Pricing Agreement (APA) programme is quietly building trust and certainty in bilateral economic relationship.

The trade winds between India and the United States have turned rough with Trump’s decision to impose tariffs of up to 50% on Indian exports, citing New Delhi’s oil purchases from Russia. This has unsettled one of the world’s fastest-growing economic partnerships and has created uncertainties on both sides. But if tariffs dominate the headlines, a quieter story is unfolding in parallel that points to the possibility of bilateral economic cooperation and growth. India’s (APA) programme has become a bridge of trust with the US, offering the kind of predictability, trust and certainty that trade wars usually dent.

The Rise of India’s APA Programme

APAs are agreements between taxpayers (usually multinational companies) and tax authorities that provide, in advance, how international transactions (like the transfer of goods, services, or intellectual property) among related enterprises will be priced for tax purposes. It usually covers a period of five years, with an option to “rollback” to another four years, thereby providing certainty for 9 tax years, that too in one of the most litigious areas in international taxation: transfer pricing.

India launched its APA programme in 2012, seeking to reduce disputes and provide certainty to cross border investment, with the ultimate aim of improving the ease of doing business. In little over a decade, Indian APA programme has matured into a global success story, marked by a steady rise in the number of APAs signed, with a record 174 APAs being signed in FY 2024-25 (highest among all reporting countries). This also included India’s first-ever multilateral agreement, which provides tax certainty to businesses across more than two tax jurisdictions. With this, the total number of APAs executed by India has reached 815, placing India among the top five APA jurisdictions worldwide.

The milestone is even more contextually significant if we consider that in 2024, India overtook Japan to become the US’ largest bilateral APA partner and more than half of India’s pending bilateral APA applications involve the US, a remarkable sign of how taxpayers and tax authorities on both sides value the certainty enshrined in these agreements and also the impetus that it provides for Indo-US cross border trade of goods and services.

Why This Green Shoot Matters

APAs matters because they create a virtuous ripple far which goes beyond only taxation:

• •  Certainty for business– Companies gain insight into how their tax liabilities will be treated for years to come, providing predictability and certainty, thereby contributing to ease of doing business.
  •  Easing litigation burden– Tax cases clog India’s courts (over 52 million cases are pending nationwide) with many of them being civil and criminal cases involving human rights issues as well as complex commercial disputes, having far reaching implications. By resolving the transfer pricing issues up front, APAs ease the load on the judiciary and free resources for other pressing matters.
  •  Better investment climate– Predictable taxation reassures global investors and encourages companies to localize supply chains, set up hubs, and expand operations, supporting India’s ambition to be both a manufacturing base and a services powerhouse.
  •  Balanced approach– APAs, being negotiated agreements, seek to attain a fair balance between protecting revenue interests and economic growth. They promote voluntary compliance rather than adversarial enforcement, leading to a win-win scenario, fostering trust and enhanced cooperation.

Challenges and the Roadmap for future

Of course, challenges remain. The increase in APA applications has strained the limited pool of transfer pricing experts at the Central Board of Direct Taxes, calling for an urgent need to expand and upskill the existing APA teams so that India can be one step ahead of the times. Further, the rise of digital business models and intangible assets makes pricing more complex than ever, necessitating exposure of Indian administrators to the best in class training programs and peer knowledge sharing. Most importantly, the APA programmed depends heavily on timely, proactive and good-faith based cooperation from taxpayers, shedding the mentality of earlier adversarial engagement with the tax department to a more cooperative and trust based engagement.

Meeting these challenges will require fresh investment in specialist teams, institutionalizing capacity building and knowledge sharing mechanisms, and above all greater international collaboration. For India, shortening the average time to conclude an APA to under 30 months (closer to global practice) should be a key target. Expanding into multilateral APAs will also be critical as value chains grow more global and digital, keeping in view the new multi polar world order. Moreover, the knowledge gathered from concluded APAs should be used to improve safe harbour rules and inform better audit strategies, creating a feedback loop that strengthens the entire tax system.

From Storm Clouds to Green Shoots

In a year dominated by tariff headlines, the APA programme stands out as a reminder that cooperation is still possible. Each APA signed between India and the U.S. is more than a technical accord, it is a quiet confidence-building measure towards a broader partnership based on trust and cooperation. For India and the US, two democracies with far more to gain from cooperation than confrontation, these green shoots may prove essential in weathering the trade turbulence of today and building the prosperity of tomorrow. Governments of both countries should, therefore, provided adequate impetus to the programme’s success.

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