The Irish Revenue Commissioners (Revenue) published guidelines on June 23, which detail the scope, procedure and administrative requirements of the APA programme. These guidelines are in accordance with the best-practice recommendations of the BEPS Action 14 final report. The APA programme will replace Revenue’s existing ad hoc approach to agreeing APAs and will provide increased certainty and transparency for taxpayers with multi-jurisdictional operations.
Scope of the APA Programme
The APA programme will apply to complex transfer pricing (TP) issues only, where the appropriate application of the arm’s-length principle is in doubt or there is a significant risk of double taxation. Revenue list a number of factors which indicate the appropriateness of a particular matter for an APA, including:
- significant doubt exists over the appropriate TP methodology or a bespoke TP methodology is being applied;
- the application of the TP methodology is complex or requires complex calculations;
- reliable comparables are not readily available and/or require significant and complex adjustments; and
- the transaction is real (i.e. not hypothetical) and is not expected to change throughout the duration of the APA.
Accessing the APA Programme
A company’s access to the APA programme is subject to the terms of the mutual agreement procedure (MAP) article of the relevant double tax treaty. An application for an APA may be made by a company which is tax resident in Ireland, or by a permanent establishment of a non-resident company, in respect of:
- multi-jurisdictional transactions between separate business enterprises; or
- transactions between parts of the same business enterprise operating in different countries.
Revenue will not enter into unilateral APAs. Where the relevant TP issues involve more than two tax jurisdictions, Revenue will consider entering into a series of bilateral APAs to deal with multilateral situations.
The APA Procedure
The APA process will typically take up to 24 months and will involve the following five stages:
- Pre-filing: The pre-filing meeting will enable the parties to establish whether an APA is appropriate and will facilitate a discussion of the relevant issues (i.e. the transactions involved, proposed TP methodology, etc.).
- Formal application: The formal APA application will require submission of information including an executive summary, details on the company background, industry analysis, the covered transactions, functional analysis, economic analysis (covering the proposed methodology, search for comparables and any adjustments) and details of any related audit enquiries.
- Evaluation & negotiation: Revenue will formulate its view based on a detailed evaluation of all information submitted. Revenue will then enter into negotiations with the relevant competent authority to resolve any differences arising, with the objective that one agreed set of terms and conditions can be provided to the taxpayer.
- Agreement: Where an agreement is reached, Revenue will notify the taxpayer in writing of the agreed terms and conditions within 30 days. If the agreed terms are accepted by the taxpayer, Revenue will liaise with the other competent authority to finalise the APA. If the agreed terms are not accepted, Revenue will consult with the other competent authority regarding modification where possible.
- Annual reporting: The taxpayer will be obliged to file an annual report with Revenue detailing how it has complied with the terms of the APA. The TP issues covered by the APA will not be subject to audit adjustments by the participating tax authorities provided the terms and conditions of the APA are consistently satisfied.
Duration of an APA
An APA will be granted for a specific fixed period of time, typically three to five years, with provision for roll-back in appropriate cases. An APA can be revoked for non-compliance or cancelled in certain circumstances including where the terms of the APA are no longer effective or where there has been a material departure from any critical assumptions.
The development of the formal APA programme is the latest step in Ireland’s implementation of BEPS measures. The APA programme will provide certainty and clarity to taxpayers involved in complex transfer pricing transactions and should protect taxpayers against a retrospective application of TP principles. Importantly, all information submitted to Revenue as part of the APA process and subsequently exchanged with the other relevant competent authority will be confidential. Basic information on concluded APAs will continue to be subject to exchange of information obligations under EU law.
Authored by Joe Duffy and Tomas Bailey (pictured above), this article first appeared on TPWeek.com on 4 July 2016.