On September 28, 2022, the OECD published the Bilateral Advance Pricing Arrangement (“BAPA”) Manual. The manual proposes best practices for jurisdictions to streamline, expedite and improve BAPA processes based on member surveys. Most notably, the BAPA manual encourages jurisdictions to conclude BAPAs within 30 months and to work to further reduce completion times to 24 months or less.
APAs provide taxpayers and tax administrations advance certainty for the transfer pricing of certain covered transactions during covered periods. In recent years certain OECD members, such as the United States, have introduced new advance dispute prevention mechanisms, such as International Compliance Assurance Programme (“ICAP”). But APAs are still the model advance dispute prevention tool, and the only one that provides taxpayers legal certainty for transfer pricing matters.
The manual provides 29 best practices for jurisdictions to follow in order to have successful APA programs. It also includes a sample timeline that outlines the completion times for interim stages in order for BAPA cases to be concluded within 30 months, with a further objective to reduce completion times to within 24 months. For taxpayers, this is a welcomed and ambitious goal that should reduce APA completion times significantly. By way of comparison, the median completion time for BAPAs concluded by the IRS in 2021 was over 35 months (and over 45 months for “new,” i.e., non-renewal BAPAs), as discussed in a prior post about the 2021 Advance Pricing Mutual Agreement (“APMA”) APA Annual Report.
Some of the other significant proposed best practices, many of which are already generally observed by most competent authorities, include:
- The term of a BAPA should generally be a minimum of five years, including at least two prospective taxation years, where the facts and circumstances are expected to be the same.
- During any engagement between a competent authority and the taxpayer, prior to a taxpayer being accepted into a BAPA process or lodging a BAPA application, whichever is later, competent authorities should not:
- unduly influence the taxpayer’s position on any issue that forms part of its BAPA application;
- undertake analysis for the purposes of determining the competent authority’s position on any issue associated with the BAPA. Any preliminary analysis undertaken by a competent authority as part of early engagement or pre-filing should only be to inform the taxpayer as to the issues that should be covered in its request for acceptance into a BAPA process (including collateral issues); or
- engage with the taxpayer to unilaterally agree any position for the purposes of the taxpayer’s BAPA application (including the acceptable transfer pricing method, comparables or pricing).
- Competent authorities and BAPA case officers should not give taxpayers access to position papers and taxpayers should not be part of the substantive discussions on the BAPA between competent authorities.
- During the BAPA process, taxpayers should file their tax returns in the relevant jurisdictions in the proposed covered years based on the positions taken in their BAPA application.
- Jurisdictions should ensure they have in place adequate policies/practices for their audit and BAPA functions to communicate and coordinate effectively. In this regard, jurisdictions should also include an explanation of the relationship between the audit and BAPA process in their published BAPA guidance.
- Subject to domestic limitations, a competent authority involved in the BAPA process should also ensure that they inform the treaty partner of potential audit interactions, such as ongoing or planned audits in relation to a transaction(s) covered by the BAPA or the planned presence of auditors in BAPA discussions (including auditors on the BAPA team).
Overall, APMA and its competent authority partners have successfully maintained robust APA programs during the pandemic as shown by the near all-time record numbers of APAs that recently have been received and concluded. The manual seems to be another step in the right direction to grant more taxpayer access to this valuable tool.
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