Advance pricing agreements (APAs)
What are advance pricing agreements (APAs)?
APAs represent 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 into pursuant to New Zealand's double tax treaties. The International Audit Unit has 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 31 December 2008 | 40 |
| Applications currently in progress | 5 |
| Total | 45 |
Most of our bilateral APA work has been with Australia. We have also completed bilateral APAs with Japan, Switzerland and the United States. Our preference is for bilateral/multilateral APAs because unilateral APAs may not necessarily be accepted by another affected tax administration should the covered transactions come under their examination.
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 John Nash - see The International Audit Team
We have found the pre-application conferences especially beneficial in reducing the amount of work an applicant has to undertake (and also the amount of paper we have to wade through). Assuming a company has good transfer pricing documentation in place then the application should be neither difficult nor onerous.
Our aim is to complete bilateral APAs with Australia within six months of the date of acceptance of a formal application. In large part we have met this timeframe criterion and have achieved sound practical outcomes for all applicants to date.
Date published: 19 Feb 2009
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