On November 10, 2015 the Australian Taxation Office (ATO) published an interesting overview titled: “Advance pricing arrangements”. The overview is not only interesting for taxpayers and professionals dealing with the ATO, but also for other persons that want to get a better general understanding of Advance Pricing Arrangements (APAs).

The overview published by the ATO, provides general information about advance pricing arrangements and certain specific information for taxpayers. The ATO emphasizes that the information provided in the overview needs to be read in conjunction with PS LA 2015/4 “Advance Pricing Arrangements”.

The overview starts by providing the following definition of an APA: APAs provide the opportunity to reach an agreement with the tax authorities on the future application of the arm's length principle to your dealings with international related parties.

Subsequently the overview provides an overview of the following different sort of APAs:

• Bilateral APA

• Multilateral APA

• Unilateral APA

   

Bilateral APA

A bilateral APA is an arrangement between the competent authority (CA) of one jurisdiction and the CA of a tax treaty partner country of that jurisdiction.

According to the ATO the CA of each treaty partner country confirms the terms of the APA in writing through a letter or similar document with their resident taxpayer and agrees to be bound by those terms. According to the ATO a bilateral APA gives assurance to both entities dealing with the tax administrations at both side of the transaction. According to the ATO a bilateral or multilateral APA therewith minimizes the risk of double taxation for the covered cross border dealings.

Multilateral APA

The ATO defines a multilateral APA as an arrangement between the relevant taxpayers, the CAs of more than one tax treaty partner that binds all the parties.

Unilateral APA

An APA between the taxpayer and the tax authorities of a jurisdiction is referred to as a unilateral APA where the APA does not involve or require agreement with the CA of a tax treaty partner country. A unilateral APA provides the taxpayer with an assurance that, for the term of the APA, the tax authorities of the jurisdiction of which the CA has signed of on the APA accepts the treatment the taxpayer gave to the covered dealings.

According to the ATO economic double taxation can arise under a unilateral APA where the tax administration of a foreign country forms a different view as to the application of the arm's length principle to the cross border dealings covered by the APA.

Other subject discussed in the overview are more specific with respect to Australia and include a.o.:

·         When is an APA appropriate?

·         Process overview

·         Mutual expectations

·         Early engagement stage

·         APA Application Stage

·         Processing an APA Application

·         The APA Document

·         Need assistance with an APA or MAP relief?

·         Competent Authority Network

·         APA statistics

Click here to be forwarded to the overview: “Advance pricing arrangements” as available on the website of the ATO, which will open in a new window.

PS LA 2015/4 (Practice Statement Law Administration 2015/4), which was issued on July 23, 2015, is more a sort of Q&A document that provides guidance to ATO staff on APA’s. Click here to be forwarded to PS LA 2015/4 as available on the website of the ATO, which will open in a new window.

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