Advance Pricing Agreement Guidelines
- September 8, 2021
An ABS is an administrative approach that attempts to avoid transfer pricing disputes by defining criteria for the application of the arm`s length principle to transactions prior to such transactions. This is in contrast to traditional audit techniques, which examine whether transactions already carried out reflect the application of the arm`s length principle. These approaches were relatively new at the time the 1995 Guidelines were adopted by the OECD Council and, for example, in paragraph 4.161 of the Transfer Pricing Guidelines, the Committee on Fiscal Affairs stated that it intended to “carefully monitor any wider use of ABS and promote greater consistency in practice among countries that choose: to use them”. In addition, 4.163 of the Guidelines states that “as far as possible, an ABS should be concluded between the competent authorities on a bilateral or multilateral basis within the framework of the mutual agreement procedure of the treaty concerned”. The operation of the APP may depend on compliance with certain requirements and compliance with certain critical assumptions. If you have done so, we are administratively bound by the terms of the APA and we do not collect any additional income tax payable based on the prices set under the APA for covered cross-border transactions. APAs offer a mechanism to manage and reduce your transfer pricing risk by providing you with greater security on a forward-looking basis. The conclusion of an ABS fosters a constructive working relationship based on mutual trust based on early engagement and full and open disclosure throughout the preparation of the PA. Entering into an APA reduces the double taxation potential of your covered cross-border transactions. Bilateral and multilateral AAAs are generally bilateral or multilateral, i.e. they also include agreements between the taxable person and one or more foreign tax administrations under the supervision of the cartel procedure (POPs) established in income tax treaties.  The taxable person benefits from such agreements, as it is certain that the income related to the transactions covered is not subject to double taxation by the IRS and the competent foreign tax authorities. .