Advance Pricing Agreements
An Advance Pricing Agreement (APA) is a procedural agreement between one or more taxpayers and one or more tax authorities that aims to avoid any transfer pricing disputes, by determining in advance a set of criteria to apply, within a specified period, for specific cross-border controlled transactions, to ensure their compliance with the arm’s length principle.
The main advantages of an APA include the following:
• Avoiding tax audits for the transactions covered by APA (reduction of related costs and efforts) and elimination of potential transfer pricing adjustments:
• Elimination of late payment interest and penalties for potential transfer pricing adjustments;
• Elimination of the costs incurred with the preparation of the transfer pricing file for the transactions covered by the APA (during the period the APA is in force);
• Avoidance of double taxation.