The advance pricing arrangement (APA) program is an important part of our compliance assurance strategy, that:
- provides the opportunity for you to reach an agreement with us on the future application of the arm's length principle to your dealings with international related parties
- provides a mechanism for managing and mitigating your transfer pricing risk by providing you with greater certainty on a prospective basis
- fosters a constructive working relationship built on mutual trust which is established through early engagement and full and frank disclosure throughout the negotiation of the APA
- reduces the potential for double taxation on your covered cross-border dealings.
The operation of the APA may depend on you complying with requirements and meeting certain critical assumptions. If done, we are administratively bound by the terms of the APA. Therefore, we will not impose additional income tax to that payable, based on the pricing worked out under the APA on the covered cross-border dealings.
The APA generally covers a period of 3 to 5 years. It may be reviewed if trading circumstances materially change. APAs are also subject to an annual reporting requirement.
When an APA is appropriate
If you have cross-border dealings and you need assurance that those dealings comply with the arm’s length principle, you may seek an APA. The dealings must be between:
- related or unrelated separate legal entities (including permanent establishments of separate legal entities)
- a permanent establishment and its head office
- two permanent establishments of the same entity.
For legal guidance, see our:
- Law Administration Practice Statement PS LA 2015/4 Advance Pricing Arrangements
- Taxation Ruling TR 97/20 Income tax: arm's length transfer pricing methodologies for international dealings.