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.” In October 1999, the OECD published an update of the OECD guidelines on clearing prices for multinational companies and tax administrations in 1995 (the so-called “guidelines”). This update takes the form of a new schedule to the guidelines, which contains guidelines for the implementation of ex ante price agreements as part of the Mutual Agreement Procedure (MAP-APAs). The annex is an integral part of the guidelines, as evidenced by the OECD Council`s decision of 28 October to amend its original recommendation on the 1995 guidelines to include the new guidelines in this annex. It therefore has the same status as the eight existing chapters of the guidelines. The APA is an agreement between a tax payer and the tax administration of a state to create a prior guarantee with respect to the transfer pricing method. APAs simplify or prevent costly and time-consuming tax controls in contentious transactions. A pre-price agreement (APA) is a prior agreement between a tax payer and a tax authority on an appropriate transfer pricing method (TPM) for a number of transactions involved during a specified period (“covered transactions”). Felic Setiawan is Director of Transfer Pricing at GNV Consulting Services.
He specializes in advising multinational companies in the design and implementation of their transfer pricing policy, documenting and participating in transfer pricing and dispute resolution audits. Since then, the Ministry of Finance (MoF) and the DGT have adopted a number of regulations to this effect. In recent years, in particular, a number of transfer pricing rules have been introduced to bring national rules in line with the OECD and G20 action plan on the basic payment regime. Despite the availability of national dispute resolution mechanisms, recent transfer pricing decisions by tax authorities, as well as significant progress in the number of APP and POPs resolved cases, have put an end to uncertainty and strengthened taxpayer confidence. The EU Arbitration Convention has introduced a procedure for settling transfer pricing disputes between Member States.