BAPA's and MAPA's
Advance Pricing Agreements (APAs) are legally binding agreements between the taxpayer(s) and the tax authorities used to obtain prior certainty on the application of transfer pricing methods and/or rules for a certain (set of) transaction(s). This could include an agreement on the most appropriate transfer pricing method to be applied. APAs must be aligned with the law and the transfer pricing regulations of the countries involved.
When an APA is concluded, the tax authority or tax authorities accept a certain interpretation of the transfer pricing methods and/or rules for a specific transaction or set of transactions for a given time period, usually 5 years. In some cases, it is possible to extend the time period of the APA to also cover the period between the application and the approval of the APA. This is commonly known as a ‘rollback’. Moreover, it is also possible to apply for a renewal of an expiring APA.
Types of APAs
We distinguish three forms of APAs, namely:
- Unilateral APA: agreement between the taxpayer and one tax authority.
- Bilateral APA: agreement between the taxpayer and two tax authorities.
- Multilateral APA: agreement between the taxpayer and more than two tax authorities.
Bi-/multilateral APAs usually take longer to obtain because more than one tax authority is involved. Partly for this reason, bi-/multilateral APAs are more complex and costly. Nevertheless, bi-/multilateral APAs can be a great solution for cases in which there is a (material) transfer pricing risk in multiple jurisdictions. For example, if you expect one tax authority would take an unreasonable position it may be beneficial that there is also another tax authority at the table to convince them otherwise instead of just yourself as taxpayer.
Once such Bilateral APA (BAPA) or Multilateral APA (MAPA) is obtained this significantly reduces your audit risk in those and other jurisdictions. It provides for a quality stamp on your transfer pricing policy that is also appreciated by (new) investors and auditors for example.
The complexity of the BAPA and MAPA process
The BAPA and MAPA process can be complex if you have limited experience with it. It is quite common to involve a Transfer Pricing specialist, not only for the technical side but also to support in how to handle the process most optimally. As QG, this is a field in which we have extensive expertise and experience. We have for example former heads of the Dutch APA practice with us, who handled BAPAs and MAPAs from tax authority and consultancy perspective and were selected by the European Union to support two tax authorities in streamlining their APA process. We can assist and guide you through the BAPA and MAPA process and can also act as sparring partner when you would like to start such process yourself.