Effective July 1, 2016, Revenue has implemented a formal bilateral APP program. The introduction and publication of this official program by Revenues clarify things for taxpayers: in general, a bilateral APA is a binding agreement between two tax administrations and the taxpayers concerned. This agreement is concluded by referring to the corresponding double taxation agreement. It regulates the tax treatment of future transactions between related subjects. The appendix begins with the definition of the different types of APA and describes the objectives of the APA process. The ability to participate in an APA MAP is considered with respect to contractual issues and other factors such as the audit status of the subject. Issues relating to multilateral GPAs (i.e., where there is more than one bilateral agreement) are also addressed. The central point of the annex deals in detail with the whole MAP-APA procedure, starting with the meetings before the presentation, on the presentation of a proposal, its evaluation by the tax authorities, the discussion and conclusion of the mutual agreement, the implementation of this mutual agreement and, finally, the follow-up of the agreement and a possible extension. While the Schedule focuses on the direction of tax authorities, it takes the opportunity to discuss how the taxpayer can best contribute to this process. An APA is an administrative approach that aims to avoid transfer pricing disputes by establishing criteria for applying the arm length principle to transactions prior to such transactions. This contrasts with traditional audit techniques that verify whether transactions that have already taken place reflect the application of the arm length principle. Such approaches were relatively new at the time the 1995 OECD Council adopted the guidelines, and the tax committee therefore indicated, in point 4.161 of the transfer pricing guidelines, that it intended to „carefully monitor any extensive use of the APA and promote greater consistency in practice among countries that choose to use them.“ In addition, point 4.163 of the guidelines states that „if possible, an APA must be concluded on a bilateral or multilateral basis between the relevant authorities as part of the treaty`s mutual agreement procedure.“ Download our Transfer Pricing Brochure for more details A pre-price agreement (APA) is a prior agreement between a tax payer and a tax authority on an appropriate transfer pricing method (TPM) for a series of transactions in play for a specified period („Covered Transactions“).
A bilateral APA carries less risk that taxpayers will feel compelled to make an APA or simply to accept a non-arm length agreement in order to avoid high-priced and long-term investigations and possible sanctions.