Cosmos International Management Co., Ltd.



Service (Transfer Pricing & International Tax Consulting)


Transfer Pricing Consulting:
APA

Even transfer pricing documentation cannot completely remove the risk of transfer pricing adjustment by tax authorities. However there is a strong need among taxpayers who want to concentrate on business operations without being confused by transfer pricing taxation risk. Advance Pricing Arrangement ("APA") is a weapon to realize such a need. Under APA, tax authorities give taxpayers "confirmation" that transfer pricing of the applied related-party transaction(s) will not be examined and adjusted for a certain period, if tax authorities recognize the rationality of transfer pricing method ("TPM") selected for such transaction(s) and the result of applying the selected TPM satisfies arm’s length principle.

APA is largely divided into unilateral APA and bilateral APA. The unilateral APA is a system to obtain confirmation from one tax authority in high taxation risk, while the bilateral APA is an ultimate transfer pricing risk avoidance tool to eliminate the occurrence of double taxation by the two tax authorities agreeing on the applied methodologies.

However, APA is not introduced in all countries having transfer pricing regulations, and the bilateral APA cannot be applied without a bilateral double tax treaty. Moreover, APA requires long time and substantial working costs to complete. Further, there is a risk that the confirmation will not be given to taxpayers. Considering the above, we recommend that companies apply APA only when the risk is high enough to deserve time and costs taken, and that they (especially companies with no or little prior APA experience) obtain transfer pricing specialist's support. In cooperation with Cosmos Tax and TPA, we can fully support clients with both unilateral and bilateral APAs from the beginning (pre-filing conference with tax authorities) to the end (confirmation).


Flow of APA
(Flow until obtaining confirmation)

  • Pre-filing conference with tax authority
  • Make APA submission document and file
  • Review by tax authority (for bilateral APA, both tax authorities simultaneously review)
  • Mutual agreement procedure (for bilateral APA)
  • Confirm APA

(Flow from obtaining confirmation to the end of APA)

  • Annual report during the APA period (when filing annual tax return)
  • Compensating adjustment in case of pricing or profitability out of the pre-determined range
  • Renewal of APA (if taxpayer wants)

Advantages of APA

  • APA can exclude the ongoing transfer pricing taxation risk completely for a certain period.
    ⇒For bilateral APA, application of rollback APA for the past years is possible.
  • After filing the APA, no transfer pricing examination for the applied related-party transaction(s) will take place. (Please note however that in case the examination started before filing the APA, the APA filing does not interrupt the examination.)
  • Review of APA by tax authorities is much cooperative and friendly process compared to tax examination, so taxpayers can build good relationship while discussing frankly with tax authorities.

Please contact us for the detail of this service.

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