Advance Pricing Agreement Defined
3. The period during which an APA can be considered must be significantly extended when dealing with foreign tax authorities. The new period is 24 months from the date an application is made. However, this cooling-off period may also be extended to 27 months, but may be suspended for periods during which foreign tax authorities submit documents as part of the DTT`s mutual agreement procedure. The double taxation agreement is available on the website of the Federal Ministry of Finance. However, it is possible that a subject may be able to negotiate a unilateral APA involving only the taxpayer and the IRS. In this case, both parties negotiate an appropriate TPM only for U.S. tax purposes. If the taxpayer is involved in a dispute with a foreign tax authority over the registered transactions, he can apply for a discharge by asking the competent US authority to initiate a procedure of mutual agreement. This, of course, implies the entry into force of an applicable foreign income tax agreement.
Upon receipt of the application, the BZSt verifies that all conditions (including the applicant`s agreement not to challenge the fees) for the execution of an APP procedure are met. An APP procedure is only implemented if the application is admissible and justified. On 27 March 2020, the Russian Ministry of Finance published an updated version of the bill “On the amendment of the first part of the Russian tax code to improve price tax control and the procedure for concluding advanced price agreements” (hereafter the “Bill”). An APA is an administrative approach that aims to avoid transfer pricing disputes by establishing criteria for applying the arm length principle to transactions prior to such transactions. This contrasts with traditional audit techniques that verify whether transactions that have already taken place reflect the application of the arm length principle. Such approaches were relatively new at the time the 1995 OECD Council adopted the guidelines, and the tax committee therefore indicated, in point 4.161 of the transfer pricing guidelines, that it intended to “carefully monitor any extensive use of the APA and promote greater consistency in practice among countries that choose to use them.” In addition, point 4.163 of the guidelines states that “if possible, an APA must be concluded on a bilateral or multilateral basis between the relevant authorities as part of the treaty`s mutual agreement procedure.” Companies that wish to avoid the threat of double economic taxation in advance can apply for an APA.