Pan-European APAs – a regional approach to transfer pricing risk management

By: Louan Verdoner and Steef Huibregtse.

In recent years multinational enterprises have concluded Advance Pricing Agreements with tax authorities for a variety of motives such as: the closing of a transfer pricing audit circle, obtaining certainty on the transfer pricing and tax treatment of certain transactions, and the mitigation of their risk for future tax audits. Tax authorities in their turn show increasing interest in the conclusion of Advance Pricing Agreements.

A principal difference may be observed between dispute avoidance and dispute resolution. Dispute avoidance is obtained by entering into bi- and multilateral APAs as amongst others recommended in various EU reports, elaborating the required case & request process management. On the contrary dispute resolution is attempted by application of Mutual Agreement Procedures pursuant to Section 25 of the OECD Model Tax Convention. The OECD has published a Manual on Effective Mutual Agreement Procedures, including treatybased Arbitration Clauses, containing amongst others best practices to be complied with by tax administrations and taxpayers. The corresponding notions in tax and transfer pricing theory and practice are illustrated by Appendix I called “Where transfer pricing meets tax”.

The purpose of this article is to introduce a model request process, developed and elaborated within our organisation, which copes with the characteristics of the different stages of APA case management. This will be addressed in Section lll. Before, Section l gives some context on the usage of APA as tool to mitigate transfer pricing risks. Section ll and lll will provide the main features of OECD Guidelines and EU JTPF Reports dealing with APAs in general.

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