Rule 122 — Procedure to deal with requests for bilateral or multilateral advance pricing agreements.
Sub-rule (1) sets the scope: where a person has made a request for a bilateral or multilateral advance pricing agreement in an application filed in Form No. 51 in accordance with rule 106, the request is dealt with subject to this rule. Sub-rule (2) sets a precondition outside India's control — the process commences only if the associated enterprise located outside India has initiated the advance pricing agreement process with the competent authority of the other country.
Sub-rules (3) to (6) run the negotiation. On intimation of the request, the competent authority of India consults and ascertains the willingness of the competent authority of the other country or countries to begin negotiation. If they are willing, the competent authority of India enters into negotiation and endeavours to reach mutually acceptable terms. On reaching agreement after consultation, it formalises a mutual agreement procedure arrangement with the other competent authority or authorities and intimates the same to the applicant. If no agreement on mutually acceptable terms is reached, the applicant is informed of that.
Sub-rule (7) fixes the applicant's place in the process: the applicant is not entitled to be part of the discussion between the competent authority of India and the competent authority of the other country or countries, but may communicate or meet the competent authority of India for the purpose of entering into an advance pricing agreement. Sub-rule (8) requires the applicant to convey acceptance or otherwise of the agreement within one month from the end of the month in which the communication has been received. Sub-rule (9) gives the applicant who does not accept two choices: continue the advance pricing agreement process without the benefit of the mutual agreement procedure, or withdraw the application in accordance with rule 107.
A bilateral or multilateral advance pricing agreement is not something India can grant alone; it is the product of two or more tax administrations agreeing. The rule therefore states the sequence, the trigger and the exit. Sub-rule (2) prevents a one-sided process by requiring the associated enterprise to have started matters in its own country. Sub-rule (7) settles the applicant's status in a negotiation conducted between States, and sub-rule (9) makes clear that a failed or unacceptable bilateral outcome does not end the applicant's advance pricing agreement — it can continue unilaterally or be withdrawn.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time for the applicant to convey acceptance or otherwise of the agreement | Within one month from the end of the month in which the communication has been received | Communication of the agreement reached between the competent authorities | Rule 122(8) |
The applicant's own filing does not start the bilateral process. Sub-rule (2) makes commencement depend on the associated enterprise having initiated the process with the competent authority of the other country, so the two filings have to be co-ordinated across jurisdictions or the Indian application simply waits. Once negotiation starts, the applicant is outside the room: sub-rule (7) denies any entitlement to be part of the discussion, while preserving the right to communicate or meet the competent authority of India. Failure to reach agreement is not a rejection of the application — sub-rule (9)(a) allows the process to continue without the benefit of the mutual agreement procedure — but the one-month clock in sub-rule (8) runs from the end of the month of communication, and an applicant who lets it pass without conveying acceptance has not accepted.
A company files Form No. 51 under rule 106 seeking a bilateral advance pricing agreement, but its overseas associated enterprise has not approached its own competent authority. Nothing commences until it does. Once it has, and the two competent authorities negotiate and reach terms, the arrangement is formalised and communicated to the company, which then has until one month from the end of the month of receipt to convey acceptance. If it does not accept, it may carry on with the advance pricing agreement process without the benefit of the mutual agreement procedure, or withdraw the application under rule 107.
You meet it inside the advance pricing agreement process: as the Form No. 51 request, the intimation that the other competent authority is or is not willing, the communication of the arrangement reached, and the acceptance the applicant has to convey.
The process for bilateral or multilateral advance pricing agreement shall commence only if the associated enterprise located outside India has initiated process of advance pricing agreement with the competent authority of the other country.
The applicant shall convey acceptance or otherwise of the agreement within one month from the end of the month in which communication has been received.
