Advance Pricing Arrangements: Optimal tools – Optimal Framework?

Advance Pricing Agreements (APAs) are a diffused tool for taxpayers to obtain certainty in relation to the tax impact of their cross-border activities through an agreement with a tax administration in advance of such activities. APAs can be unilateral, bilateral, or multilateral depending on the number of national tax administrations involved, the latter two promising that the agreement made shall not be questioned in the other affected tax jurisdiction. Departing from the enhanced mutual agreement procedure (MAP) framework recently established among Member States through the Tax Dispute Resolution Directive, a future EU legislative initiative could outline a robust framework for MAP APAs in the Single Market.


In terms of purpose, an APA complements the various domestic and international existing tax dispute resolution mechanisms and allows their prevention with an agreement in advance. Transfer pricing issues can be determined before the performance of the questionable transaction in a collaborative manner that engages both a taxpayer and a tax administration. A key advantage of such a priori determination is evidence related: taxpayers and tax administrations discuss current – and hence easily evidenced – transactions while a posteriori tax dispute resolution mechanisms rely necessarily on existing evidence of past events. Several benefits of APA has also been highlighted.


Thus, the present article seeks to primarily provide an overview in part two of the changes made or promoted at an international level in the context of the BEPS Project discussion on Dispute resolution. Part three then focuses on the EU, the further changes brought by the European legislator, and their impact in order to suggest an additional step ahead: the establishment of a pan-European framework for the conduct of APAs involving Member States. Finally, part four concludes that the changes that have already been implemented have effectively prepared the grounds for more substantial international cooperation in relation to APAs to the benefit of international taxation and the economy as a whole.


In summary, the present article focused on the prevention of cross-border tax disputes with APAs. In use since the late 1980s, the APA mechanism is recently undergoing important changes at the international level with the intention of ensuring that it cannot be exploited for harmful tax competition purposes. Such changes at both the EU and international levels aim at enhancing transparency regarding APAs and thereby strengthening the mechanism while they are also expected to have significant impact on the content of the APAs.


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