Rule 103: Advance pricing agreement definitions
Rule 103 supplies the definitions used in the advance pricing agreement procedures. The type of agreement, the transactions covered and the critical assumptions determine how an APA is negotiated and monitored.
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Rule 103 - Meaning of expressions used in matters in respect of advance pricing agreement
For the purposes of this rule and rules 104 to 120, —
(a) ―agreement‘ means an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in section 168(1);
(b) ―application‖ means an application for advance pricing agreement made under rule 106;
(c) ―applicant‖ means a person who has made an application;
(d) ―bilateral agreement‖ means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 122 between the competent authority of India with the competent authority of the other country regarding the most appropriate transfer pricing method or the arms' length price;
(e) ―competent authority of India‖ means an officer authorised by the Central Government for the purpose of discharging the functions relating to any agreement entered into under section 159 of the Act;
(f) ―covered transaction‖ means the international transaction or transactions for which agreement has been entered into;
(g) ―critical assumptions‖ means the factors and assumptions which are so critical and significant, that if changed, the parties to the agreement shall not continue to be bound by the agreement;
(h) ―most appropriate transfer pricing method‖ means a transfer pricing method, referred to in section 165(1), being the most appropriate, having regard to the nature of transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors specified by the Board under rules 79 and 80;
(i) ―multilateral agreement‖ means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 122 between the competent authority of India with the competent authorities of the other countries regarding the most appropriate transfer pricing method or the arms' length price;
(j) ―rollback year‖ means any tax year, falling within the period not exceeding four tax years, preceding the first of the tax years referred to in section 168(4);
(k) ―tax treaty‖ means an agreement under section 159 for the avoidance of double taxation;
(l) ―team‖ means advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Principal Chief Commissioner of Income-tax (International Taxation); and
(m) "unilateral agreement" means an agreement between the Board and the applicant, which is neither a bilateral nor a multilateral agreement.
Rule breakdown
An APA is an agreement with the Board
The agreement is entered into between the Board and the applicant with Central Government approval under section 168(1). The applicant is the person who has made the Rule 106 application.
Distinguish the formal agreement from preliminary discussions, an application acknowledgment or an internal pricing policy.
Choose the agreement type deliberately
A bilateral agreement follows and is based on the relevant arrangement between India’s competent authority and that of the other country. A multilateral agreement similarly involves the competent authorities of the other countries.
A unilateral agreement is neither bilateral nor multilateral. The choice affects the competent-authority process and should reflect the actual countries and transactions involved.
Define the covered transactions and methodology
Covered transactions are the international transactions for which the agreement has been entered into. The most appropriate method is tied to section 165(1) and the relevant transaction, parties, functions and Rules 79–80 factors.
A method agreed for identified transactions should not be assumed to cover unrelated arrangements absent the agreement’s terms.
Critical assumptions need continuing attention
The definition identifies factors and assumptions so significant that, if they change, the parties do not continue to be bound. The operational consequences must be read with Rule 110’s notice, revision and cancellation framework.
Record these assumptions in the monitoring file and assign responsibility for identifying changes in functions, risks, business conditions or other agreed factors.
Rollback is limited and conditional
A rollback year falls within a period not exceeding four tax years before the first agreement year referred to in section 168(4). The definition identifies the possible period; the separate rollback rules determine whether relief is actually available.
Do not treat the four-year definition as automatic inclusion of every preceding year or transaction.
Key takeaways
Agreement type matters
Unilateral, bilateral and multilateral processes differ.
Scope is transaction-specific
Identify exactly what the agreement covers.
Monitor critical assumptions
Changes engage the separate notice and revision framework.
Rollback is not automatic
The definition and substantive conditions must both be read.
Practical checklist
- Identify agreement type and countries involved.
- Define covered transactions precisely.
- Maintain a critical-assumptions monitoring record.
Avoid
- Do not treat an application as an approved agreement.
- Do not assume unrelated transactions are covered.
FAQs
Is a bilateral APA simply an agreement with two companies?
No. The definition depends on the competent-authority arrangement between India and the other country, followed by the Board–applicant agreement.
Does the rollback definition grant four years automatically?
No. It defines the possible preceding period; the rollback conditions must also be satisfied.
Do discussions alone constitute the agreement?
The definition refers to the Board–applicant agreement with Central Government approval.
Glossary
- Covered transaction
- The international transaction or transactions for which the agreement has been entered into.
- Critical assumptions
- Significant factors and assumptions whose change affects the agreement’s binding basis.