Grasping the complex aspects of transfer pricing such as Advance Pricing Arrangement (APA) has become critical for businesses in the UAE since the introduction of corporate tax. Transfer pricing kicks in when products, services or Intellectual Property (IP) are transferred between the divisions of an MNE that are located in different tax jurisdictions.
The prices of these transactions should be at arm’s length, which means the MNEs need to treat the transactions between their associated enterprises the same way they would between unrelated companies in comparable circumstances. APAs are critical for the accurate determinations of transfer pricing.
In this blog, we take a deep look into APAs so that you can properly ensure transfer pricing compliance in the UAE. However, it would be advisable to consult with the best transfer pricing consultants in Dubai before making any tax-related decision. Read ahead to know what APAs are in transfer pricing and its significance:
What are Advance Pricing Arrangements in Transfer Pricing?
APA is an arrangement between the taxpayer and the tax authority. It is initiated by the taxpayer and involves negotiations between the taxpayer, one or more associated enterprises, and one or more tax administrations.
An APA determines, in advance of controlled transactions, an appropriate set of criteria or methodology for the determination of the transfer pricing for those transactions over a fixed period of time. Such a methodology should be applied to fulfilment of certain conditions and criteria known as critical assumptions.
What are the Different Types of APAs?
There are three types of APAs. They are,
In a Unilateral APA, the taxpayer and the tax administration where the taxpayer is located create an arrangement. These types of APAs don’t involve other interested tax administrations.
In a bilateral APA, the arrangement is established between the taxpayer, the associated enterprise (AEs) of the taxpayer in the foreign jurisdiction, the tax authority of the country where the taxpayer is located and the foreign tax authority.
In this type of APA, the arrangement is created between the taxpayer, two or more AEs of the taxpayer in different foreign countries, the tax authority of the country where the taxpayer is located, and the tax authorities of AEs.
What are the Key Benefits of APA?
APAs create a win-win situation for both taxpayers and tax administrations. The benefits of APAs are listed below:
- APAs eliminate uncertainty by enhancing the predictability of tax treatment in international transactions.
- An APA may prevent costly and time-consuming examinations and litigation of major transfer pricing issues for taxpayers and tax administrations
- APAs reduce the rigours of audit and deliver a particular tax outcome based on the terms of the agreement
- Creates a non-adversarial environment for both tax administrations and taxpayers to consult and cooperate
How are APAs Different from Mutual Agreement Procedures?
Mutual Agreement Procedure (MAP) is a mechanism laid down in tax treaties to ensure that taxation is in accordance with the tax treaty. This can also be invoked when a taxpayer suffers or is likely to suffer an adverse action during a transfer pricing audit to avoid economic double taxation. On the other hand, APA can be entered into for prospective years.
Taxpayers with litigation history may opt to file MAP in respect of pending disputes and also opt for APA for the same transactions for future years as an effective dispute resolution/ avoidance strategy. Consult with the leading transfer pricing experts in Dubai to understand MAPs better.
Who is Eligible to File for an APA?
Any taxpayer who has undertaken an international transaction or is planning to undertake an international transaction is eligible to file for an APA.
What are the Transactions that can be Covered in an APA?
Any type of international transaction can be covered in an APA. Transfer pricing advisers in Dubai can advise you about the scope of an APA.
Hire the Best Transfer Pricing Consultants in Dubai, UAE
Transfer pricing compliance in the UAE can be complex for MNEs but it can be made simple by consulting with transfer pricing experts. When it comes to availing transfer pricing advisers in Dubai, MNEs need to be cautious. Hiring the best transfer pricing consultants in Dubai such as Tax Gian can make transfer pricing compliance seamless.
Tax Gian is the flagship brand of Jitendra Tax Consultants (JTC), consisting of a team of highly experienced tax experts. Since 2001, Jitendra Chartered Accountants, an associate of JTC, has been providing end-to-end advisory services including tax solutions in Dubai, UAE to its clients globally. We can help you navigate the complex provisions of transfer pricing. Call us today to avail yourself of comprehensive corporate tax advisory services in Dubai, UAE.