Announcement and Report Concerning Advance Pricing Agreements: What You Need to Know
If you`re a multinational corporation looking to establish a predictable transfer pricing framework, you may be interested in Advance Pricing Agreements (APAs) offered by tax authorities around the world. APAs are predetermined agreements between a taxpayer and a tax authority that establish a transfer pricing methodology for a set period of time.
Recently, the Organisation for Economic Co-operation and Development (OECD) released an announcement and report concerning APAs. This report offers insights into the use of APAs by tax authorities around the world, as well as recommended practices for taxpayers seeking an APA.
According to the report, APAs are becoming increasingly popular around the world, with more than 100 jurisdictions now offering APAs. The majority of APAs are bilateral, meaning they involve two tax authorities, while a smaller number are unilateral, meaning they involve only one tax authority.
The report also highlights some key trends in the use of APAs. For example, more and more APAs are being signed with low- and middle-income countries, as these countries seek to attract foreign investment by establishing clear transfer pricing guidelines. In addition, there is a growing trend towards the use of rollback APAs, which allow taxpayers to apply the agreed-upon transfer pricing methodology to past years as well as future years.
For taxpayers seeking an APA, the report offers some best practices. For example, the report recommends that taxpayers engage in early and open communication with tax authorities, provide complete and accurate information, and be prepared to negotiate in good faith.
Overall, the report underscores the importance of APAs as a tool for multinational corporations seeking to establish a clear transfer pricing framework. By following recommended best practices and engaging in open communication with tax authorities, taxpayers can achieve a successful APA that provides certainty and predictability in their transfer pricing arrangements.