The IRS has indicated its willingness to share unilateral Advance Pricing Agreement (APA) information to align with BEPS Action 5 re: transparency and substance.
As other jurisdictions have provided taxpayers to submit summary information that will be shared in such exchange, the IRS has not yet indicated such procedures. Thus, it is advised that any multinational with such rulings attempt to obtain a copy of the information to be shared, prior to the automatic sharing process, to ensure its accuracy.
The EY Global Alert provides additional details of this new development.
Most importantly, any taxpayer with tax rulings should already be looking at the information that could be shared to address potential questions/issues by other tax authorities, especially if there are different transfer pricing arrangements in place.
Click to access 2016US_03632-161US_TP_US%20IRS%20will%20follow%20BEPS%20Action%205%20rec%20by%20exchanging%20summs%20of%20unilateral%20APAs.pdf
THe 2012 Annual Report outlines China’s Advance Pricing Agreement (APA) process, in addition to statistics for 2005 – 2012. The agenda of the report includes:
- APA Program definition and advantages
- Legislation and Development of APA program
- APA Procedures
- Taxpayers’ Rights
- Statistics and Contacts
- Appendices, including formal meetings and applications
A Best Practices methodology addressing APA’s should be outlined in the global Tax Risk Framework for every multinational corporation. This methodology will summarize some of the following points:
- A description of the decision matrix for an APA and its implementation
- Preference for unilateral or bilateral APAs
- Implementation of global/regional/country proactive and/or reactive risk management tools
- Outline of significant jurisdictions, timelines, work plan, and accountability for implementation
- Integral coordination with tax counsel, and other functional business units
- Review plan for an APA methodology in today’s rapidly changing tax environment (evidenced recently by the change in administrative leadership for the India APA program)
- Review of applicable gaps that may exist to retrieve information readily for proactive, or reactive, APAs
Tax jurisdictions, and MNEs, are increasing their focus on APAs amidst a trend of growing uncertainty and complexity in international transfer pricing principles. The China APA Report provides good preparation for a better understanding of the complex, and lengthy, preparation needed by all parties to obtain an APA.
PwC has conducted a survey, as referenced in the attached link, of transfer pricing aspects for financial transactions in over 40 countries in the Americas, Asia Pacific and Europe. The insightful information, current as of 1/1/2013, initially provides a comprehensive overview of intercompany loans, cash pooling and guarantees followed by transfer pricing details for each country.
Each country included in the survey provided responses to the following topics:
- Transfer pricing rules and regulations, domestic / OECD guidelines
- Thin capitalisation
- Intercompany loans (arms-length nature, transfer pricing methodologies, etc.)
- Cash pooling; transfer pricing methodologies
- Intercompany guarantees
- Documentation requirements
- Advance certainty via APA, etc.
Transfer pricing questions and issues re: intercompany loans and various aspects of financial transactions are becoming more common and complex as businesses are continuing global expansion. Accordingly, multinational tax and treasury departments need to be mutually aware of transfer pricing rules for arms-length principles, contemporaneous documentation requirements, and inherent risks / opportunities for intercompany financial transactions.
Evolving rules in this area dictate continual training, awareness and strategizing risks from a global tax and treasury perspective. Transfer pricing training should be provided at regional / global treasury conferences; conversely treasury should ensure tax is aware of new financing tools that arise in different markets to ensure alignment.