The OECD BAPA Manual: focus on international alignment Schedule a call

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    The OECD BAPA Manual: focus on international alignment

    On September 13th 2022 the OECD Forum on Tax Administration’s Bilateral Advance Pricing Arrangement Manual (“the BAPA Manual”) was approved by the OECD Committee on Fiscal Affairs. The manual covers almost 100 pages and addresses many issues that can rise during a BAPA process.

    Professionals familiar with the BAPA process will recognize many of the issues from practice including the fact that there still is no such thing as a common procedure. There are many differences between countries which can make a BAPA process complex and time consuming. The BAPA Manual is not binding but does however provide for a general reference guide for Competent Authorities (“CAs”) when dealing with a BAPA. Even though it has limited formal status  the hope and intention is that it will facilitate countries to gradually further align their procedures so that a BAPA can truly become the effective instrument for managing tax compliance for many countries as well as MNEs.

    A key issue

    A key issue in a BAPA process is communication. Making sure all stakeholders are aligned and addressing issues as early as possible can be a real challenge. This will require continuous efforts from both competent authorities and  the MNE. The BAPA Manual  identifies many areas where communication may be improved to streamline the processes.

    I would like to highlight one specific piece of the communication puzzle as it might be a key to really improve average processing time of a BAPA. This relates to the default use of formal position papers in the discussions between the competent authorities. Historically the use of position papers may find its roots in general mutual agreement procedures where competent authorities discuss about a case retrospectively and the general mindset is that of a conflict. A BAPA however has a forward looking focus which may allow for alternative and more cooperative approaches to come to a solution. Future fact patterns and the option to adjust these can also be part of a BAPA solution where a retrospective discussion can only take into account the historic facts.

    Taking a cooperative approach

    When taking a cooperative approach as a starting point it would be most effective when parties would really team up in understanding a case and finding a solution that would be acceptable to all. Digging in to a certain position by a party at the start of the discussions will make the process more complicated and could easily delay progress. Especially when positions are put down in writing it tends to be more difficult to move towards a solution. Focus on a joint understanding of a case through joint fact finding and open discussions on how to interpret the facts could prevent a party from feeling that he would have to admit that he may have been wrong before.

    There are no mandatory ‘rules of engagement’ in respect of BAPAs and parties are free to consider the most appropriate way of working. This would allow for competent authorities to decide not to put efforts in formal individual position papers but rather focus on fact finding and open discussions. When such discussions result in a mutual understanding the writing efforts could then focus on a clear and accurate wording of the BAPA document. From personnel experience I can testify that when all stakeholders (competent authorities as well as the MNE) buy in to such an approach this could effectively result in a multilateral APA being processed and resolved within a year! I belief that MNEs will certainly be more willing to consider a BAPA as an attractive option to manage their TP compliance if they would have a realistic expectation that a solution could be obtained within such a timeframe.

    The BAPA Manual still seems to assume that also for BAPAs the exchange of formal position papers would be the default option. However the manual does also indicate that competent authorities do have discretion to decide on the way they would like to handle  a case.  I would love it if countries would get rid of the historically established way of doing things and start looking in an innovative and creative way at how a BAPA process could achieve a desired outcome as quickly as possible. Even if this will not be possible for all countries at once I belief that good examples may certainly lead the way. It would be great if a next issue of the BAPA Manual would show that written individual formal position papers have become the exception rather than the standard for BAPAs.