Rule 120: Transfer-pricing law while an APA application is pending
Rule 120 clarifies that merely filing an APA application does not suspend ordinary transfer-pricing law. It also requires the competent-authority negotiations in bilateral or multilateral cases to follow the relevant tax treaty.
Official notified Income-tax Rules, 2026Need advice on Rule 120?
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Bare law
Rule 120 - Miscellaneous
(1) Mere filing of an application for an agreement under these rules shall not prevent the operation of Chapter X of the Act for determination of arms' length price under that Chapter till the agreement is entered into.
(2) The negotiation between the competent authority of India and the competent authority of the other country or countries, in case of bilateral or multilateral agreement, shall be carried out in accordance with the provisions of the tax treaty between India and the other country or countries.
Rule breakdown
An application does not pause Chapter X
The rule expressly keeps Chapter X arm’s-length-price determination operating until the agreement is entered into. An acknowledgment or ongoing negotiation is not an accepted APA price.
Continue the applicable return, documentation, reporting and response work while the application is pending.
Coordinate the application with ongoing proceedings
Keep the application’s facts consistent with current-year tax filings and evidence. Where positions differ because of the stage or scope of negotiation, obtain advice and document the reason.
Do not ignore a lawful information request simply because the same transaction is being discussed in the APA process.
Treaty governs competent-authority negotiations
For bilateral or multilateral cases, negotiations between India’s competent authority and the other authority or authorities are conducted under the relevant tax treaty.
Identify the actual treaty and countries involved rather than assuming one country’s procedure applies identically to every arrangement.
Track the point at which an agreement is entered
Maintain the executed agreement and its actual covered transactions, years and conditions. Review the effect of those terms under the applicable agreement provisions when they become operative.
A pending proposal should not be communicated to the business as final tax certainty.
Key takeaways
No filing-based suspension
Chapter X continues until an agreement is entered.
Treaty-based negotiations
Bilateral and multilateral competent-authority work follows the treaty.
Keep pending and agreed positions distinct
Only the executed terms establish the agreement’s coverage.
Practical checklist
- Continue applicable compliance while the application is pending.
- Reconcile application facts with current filings.
- Retain the executed agreement and exact scope when concluded.
Avoid
- Do not describe a pending proposal as an approved price.
- Do not treat application acknowledgment as a suspension of Chapter X.
FAQs
Does filing the APA stop ordinary arm’s-length determination?
No. Sub-rule (1) expressly says mere filing does not prevent Chapter X operating until the agreement is entered.
Can ordinary compliance be ignored during negotiations?
The filing itself does not suspend the applicable transfer-pricing framework.
What governs bilateral or multilateral negotiations?
The provisions of the relevant tax treaty between India and the other country or countries.
Glossary
- Pending application
- An APA request that has not yet resulted in an agreement entered into under the framework.