At the heart of the issue are three distinct choices facing GCCs and tech captives: whether to remain locked into existing APA margins, how to deal with APA applications that are still under negotiation, and whether to opt for APAs in the future or shift to the safe harbour regime.
The reassessment is being driven by the introduction of a 15.5% safe harbour margin for IT and ITeS services in the 2026 union budget. This is significantly lower than APA margins, which range from 16.5% to 18.5%, creating a direct comparison not just for multinationals but also for foreign tax authorities that are part of negotiations under bilateral APAs.
For companies already operating under APAs, the dilemma is immediate.
“There is a clear decision point,” said Vijay Iyer, partner and national leader, Transfer Pricing Services at EY India. “If I have an APA that already fixes my margin at 17% for the next few years, should I opt out and move to safe harbour at 15.5%?”
Following consultations with advisers and industry, the Central Board of Direct Taxes (CBDT) has issued guidance allowing taxpayers to sign APAs, enter into agreements and still retain the option to opt out at a later stage if the safe harbour regime turns out to be more attractive. The move was intended to ensure that companies are not permanently locked into five-year APAs at higher margins merely because they committed to the APA, experts said.
Tax experts say the two systems could coexist, but with clearly differentiated roles.”The APA programme remains critical for complex and high-value cases where certainty is paramount,” said Kunj Vaidya, partner, PwC India. “The revised safe harbour rules, along with the recent office memo, should ease pressure on the APA pipeline by offering simpler alternatives without compromising future outcomes. Together, this is likely to accelerate the closure of pending APA cases, building on the strong momentum seen in the March 2026 cycle.”
A second group of multinationals includes those with pending APA applications. Many multinationals that filed applications in 2025 or 2026 are still negotiating margins with tax authorities. In such cases, companies are waiting to see what margins may be proposed by the APA authorities, how they compare with the safe harbour regime, and whether APAs would continue to make sense going forward.
Based on that outcome, companies would be in a position to decide whether to continue with APA negotiations or withdraw and opt for safe harbour once it becomes fully operational.
“I think it’s too premature to take a call to completely opt out of APA and depend entirely on safe harbour,” Iyer said. “Until we see how the rules evolve in the next few months and there is clarity on how the safe harbour would actually be implemented, we will not be able to tell clients that all is clear to make a final choice.”