Explain the various methods of Advance Pricing Agreement (APA). Specify the validity period of an Advance Pricing Agreement.

Various Methods of Advance Pricing Agreement (APA): Advance Pricing Agreements (APAs) can be categorized into different types based on the number of parties involved: (i) Unilateral APA (UAPA): As the name signifies, a Unilateral APA involves only the taxpayer company and the tax authority of the country where the company is located. It is an agreement between a single taxpayer and a single tax administration regarding the transfer pricing methodology for future transactions. (ii) Bilateral APA (BAPA): A Bilateral APA involves four entities in total: the taxpayer located in one country, the tax authority of that country, the associated enterprise (AE) of the taxpayer in a foreign country, and the tax authority of the foreign country where the AE is located. This type of APA involves discussions and agreements between two tax administrations, providing greater certainty and avoiding potential double taxation. (iii) Multilateral APA (MAPA): A Multilateral APA involves multiple entities and tax authorities. These entities include the taxpayer in a country, the tax authority of the taxpayer's company, two or more associated enterprises of the taxpayer, and the respective tax authorities of the countries where these AEs are located. MAPAs are the most comprehensive type, covering transactions involving multiple jurisdictions and providing the highest level of certainty. Validity Period of an Advance Pricing Agreement: The Advance Pricing Agreement shall be valid for a period as specified in the agreement. However, this period will not be more than five consecutive previous years . This period can also include a 'rollback' provision, allowing the APA to apply to previous years, typically up to four years preceding the first year covered by the APA.