Taxing Matters: How India’s APA Programme and Vivad Se Vishwas Scheme Aim to Ease the Tax Dispute Caseload

The focus of the conversation is on two significant initiatives in this space: the Advanced Pricing Arrangement (APA) programme and the newly relaunched Vivad Se Vishwas scheme for 2024. Both initiatives signal the government’s efforts to create a more streamlined and stable tax framework in India, positioning the country as an increasingly business-friendly destination.

India has historically been one of the most litigious countries globally, with a substantial backlog of tax-related disputes. According to Hunaid, over 300,000 direct tax cases and a growing number of goods and services tax disputes currently await resolution. This accumulation is partly due to India's economic rise and increasing role as a global trade hub, drawing multinational companies across various sectors, from manufacturing to marketing. However, the government’s goal of creating a smooth business environment is undermined by the long duration of many tax disputes: often up to eight or nine years. To address this, the Indian government has launched initiatives such as the APA programme and the Vivad Se Vishwas scheme, both of which are designed to expedite dispute resolution and foster greater tax certainty.

The APA programme, introduced by India’s transfer pricing authorities, aims to provide companies with more predictability in their transfer pricing for international transactions with affiliated entities. It covers up to nine years, allowing for five prospective years and four past years. The APA programme addresses frequent points of contention in international transactions, particularly for companies in technology, back-office services, and shared services.

APAs have been gaining in popularity, with a 31% rise in concluded agreements, the majority within the services sector. Many of these APAs are unilateral, although bilateral agreements, predominantly involving countries like the United States, UK, and Japan, are also common. This programme’s methods – primarily the transactional net margin method and, occasionally, the comparable uncontrolled price method – offer companies an alternative to protracted litigation, giving them clarity on pricing structures and mitigating the risk of future disputes.

When compared with the APA programmes in countries like the United States, India is progressing in terms of volume, though Hunaid suggests that its technical maturity is still evolving. While India focuses heavily on certain transactional types, more advanced issues, such as intangibles and high-value transactions, still dominate APA programmes in countries like the United States. This maturity gap means India’s APA programme still has room to grow as it navigates increasing numbers of complex international transactions.

The Vivad Se Vishwas scheme, first launched in 2020 and reintroduced in October 2024, is a fast-track settlement initiative designed to reduce India’s enormous tax litigation backlog. The 2020 scheme successfully settled 11 million cases and collected around USD8.7 billion. The scheme enables companies to settle their disputes without impacting future tax obligations, allowing them to continue disputing tax positions in subsequent years without establishing a binding precedent. This feature, combined with a waiver of interest and penalties, has driven strong interest among businesses, especially those looking to clear their balance sheets of litigation risks in light of potential fundraising or mergers and acquisitions.

For companies considering the APA programme or Vivad Se Vishwas scheme, Hunaid advises assessing the significance of recurring tax issues and weighing the cost-benefit of litigation as opposed to settlement. She emphasises that companies should avoid overly aggressive tax positions, as tax authorities globally are becoming more vigilant in anti-tax evasion efforts. Hunaid suggests a holistic, long-term approach to transfer pricing and maintaining robust documentation to reduce dispute risks. The APA programme and Vivad Se Vishwas scheme represent critical steps toward a more business-friendly tax landscape in India, helping companies navigate and resolve tax issues efficiently as they expand their operations in the country.