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Advance pricing agreements

What are advance pricing agreements ("APAs")?

APAs are a more co-operative approach to addressing transfer pricing compliance. They produce significant time and cost savings for both tax authorities and multinationals in comparison with adversarial audits. APAs encourage up-front taxpayer compliance and early resolution of potential disputes.

Domestic legislation allows a unilateral APA to be issued in the form of a binding ruling and bilateral/multilateral APAs may be entered to follow New Zealand's double tax treaties. We have grown this activity progressively as the ultimate solution to complex cases with difficult facts and circumstances. The product is ideally suited to issues involving intangibles which can result in a wide range of opinions as to pricing. Our APA inventory may be summarised as follows:

Applications Number
Completed as at 30 June 2016 153
Completed in year ended 30 June 2017 17
Total 170

Most of our bilateral APA work has been with Australia. We have also completed bilateral APAs with Belgium, Canada, Japan, Korea, Switzerland and the United States.

We have found unilateral APAs successful in both inbound and outbound transfer pricing scenarios. Although unilateral APAs are one-sided, should double taxation arise on transactions covered by a unilateral APA, we will enter into competent authority negotiations with the other jurisdiction on the basis of the unilateral APA position. Unilateral APAs are especially viable where the amounts at stake are small and/or where most of the transfer pricing risk lies in New Zealand.


We have not established any formal processes for obtaining an APA, as each case will be different, depending on a taxpayer's specific facts and circumstances. If a taxpayer does want to pursue an APA, or wishes to discuss Inland Revenue's likely requirements in the APA process, they should contact our Transfer Pricing Specialists.

The following brief outline of the initial steps usually undertaken may be useful for potential applicants:

  • A short written proposal is to be submitted discussing the business background, the international associated party transactions in question, and suggested transfer pricing methodology to be applied.
  • A pre-application meeting will follow shortly afterwards with a Principal Advisor (Transfer Pricing), to discuss the proposal informally.
  • As a result of the pre-application meeting, the APA request will be formalised and submitted for consideration. This application should be kept as simple and straightforward as possible, with the following included:
    • identification of the tested party
    • analysis of key profit drivers and value added
    • a full functional analysis
    • the choice of methodology
    • a study of comparables
    • proposed application of methodology and comparables, and
    • copies of all inter-company agreements.

In our experience, we have found the pre-application conferences especially useful for reducing the amount of work you have to undertake (and also the amount of paper we have to review). Assuming a company has good transfer pricing documentation in place then the application should be neither difficult nor onerous.

Reviewing an application

A site visit may be required to look at the actual operations of your associated parties, especially where valuable intangibles are in issue and a residual profit split methodology is proposed.

Once we are familiar with your business, we will check whether the methodology is appropriate and carry out a review of the comparables. Frequently we carry out our own search for comparables rather than simply accept the comparables offered in the application. We also like to do a cross-check using another methodology to see if the results are consistent and give an answer supportive of the proposed methodology.

When the review is completed, we sit down with the officers of the other jurisdiction (bilateral APA) or with you (unilateral APA) to discuss any differences of opinion and findings. There may be further exchanges of fact and opinion until an agreement is finally reached. In the case of bilateral APAs, we endeavour to keep in contact with the taxpayer throughout the process to ensure that the outcome agreed between the tax authorities will also satisfy the objectives of the taxpayer.

Our aim is to complete bilateral APAs with Australia and all unilateral APAs within six months of the date of acceptance of a formal application. In large part we have met this timeframe and have achieved sound practical outcomes. Negotiations with tax authorities beyond Australia generally take considerably longer to resolve.

Recovery of costs

If any overseas travel is involved in completing an APA, we will seek to recover "out of pocket" costs (transport, accommodation and meals) on an actual and reasonable basis from the taxpayer. We will provide an estimate of such costs prior to travel being undertaken.

Exchange of details of unilateral APAs

A new OECD standard has been agreed which requires the exchange of certain details of unilateral APAs to tax treaty partners. We have implemented this standard with application to unilateral APAs that have been issued on or after 1 January 2010 and were still in effect as from 1 January 2014.