How To Do Advance Pricing Agreement

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.” The appropriate authorities may agree that the subject is required to submit a notification after the APA. The subject may, for example, be required to notify the appropriate authority each year of compliance with the current APA. This reporting obligation is not related to the obligation to provide tax returns or the obligation to provide transfer pricing information, as it relates to a separate notification to the competent authority. The reporting requirement is part of the APA`s general conditions. When the subject is notified of the outcome of the negotiations, the competent authority also informs the subject of the issues for which the declaration is to be submitted and of the time frames for doing so. The meeting may be more productive if, prior to the meeting, the subject submits to the appropriate authority the issue of transfer pricing that he intends to include in the application, the specific scope of the APA and any other relevant issue necessary to resolve the matter. The subject should also contact the competent authorities of other contracting states that may be included in the APA in order to clarify the terms of the APA.

A pre-price agreement gives the taxpayer certainty as to how the pricing of APA transactions is treated with income tax when the taxpayer acts under the APA. At the same time, the taxpayer can also avoid an international double taxation related to the pricing of these transactions, since all contracting parties to the APA agree to accept the compensation fees in accordance with the APA. A pre-price agreement can only be reached if the agreement count is in accordance with the principle of arm length. This means that under the solution resulting from the APP negotiations, Finland must be entitled to a share of tax revenues on the basis of a length generated by the transactions mentioned in the agreement. At the request of the subject, all information necessary to resolve the case must be provided. The content of the required information varies from case to case. EU recommendations and OECD guidelines on transfer pricing provide guidance on the content of this information. In the statement, the subject must describe how the chosen transfer pricing method indicates that future transactions are accounted for along the length of the arms.

Preliminary decisions by the Finnish tax administration or the central tax office do not eliminate the risk of international double taxation. The question of how a transaction made by related parties is handled in the context of the imposition of the other party remains unresolved in these decisions. On the other hand, the process of negotiating an APA between two or more states can be lengthy and will not necessarily lead to an agreement.