APA Survey – When to Pursue an APA

APA Survey – When to Pursue an APA

A company might decide to enter into the APA process for variety of business reasons. The transaction’s size, novelty and complexity often drive the decision. Companies are more likely to pursue an APA for transactions that are large in scale, critical to the business, or have a high risk of audit than for routine transactions with commonly accepted pricing and available industry benchmarks.

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Nature of the business and its transactions

APAs were more likely to be considered where the company itself has complicated business structures, a high degree of centralization, or high reputational risk should it fail to withstand a transfer pricing challenge.

A transaction’s novelty could trigger APA consideration, but only if the transaction is intended to be in place for long enough to make the APA worthwhile.

Respondents also considered APAs when entering new markets and when their volume of business in a market was relatively high.


Specific arrangements that prompted respondents to consider APAs include:

  • guarantee fees and mark-ups
  • R&D cost-sharing arrangements
  • profit-pooling among multiple countries
  • contract manufacturing
  • distribution centers
  • risk management for high-reward transactions. 

Tax authority considerations

The nature of a jurisdiction’s transfer pricing administration could factor into their APA decisions.

The level of development of the APA system, the tax authority’s experience with the process and flexibility in administering it, and the adequacy of tax authority resources (both time and staffing).

APAs can be especially useful in countries where tax authorities are relatively aggressive in their transfer pricing audits, causing many companies to seek APAs in order to avoid these examinations.

Unilateral, bilateral or multilateral APAs?

Bilateral APAs, which fix transfer pricing terms with the tax authorities of two countries, were most commonly entered into by respondents. The second most common were unilateral APAs negotiated with only one tax authority.

Getting more than two tax authorities together to negotiate and agree on multilateral APAs was thought to pose a greater challenge. Some companies suggested that a better route is to negotiate one bilateral APA and then use those terms as leverage in the other jurisdictions.

If you have a satisfactory relationship with your local tax authority, involving them in bilateral negotiations with tax authorities in other countries may not be warranted. If the only real risk of adjustment is in the other country and you are reasonably confident in how your domestic tax authority will approach your file, you may be better off pursuing a unilateral APA with the other tax authority only (bearing in mind that unilateral APAs offer no protection from double taxation).

Availability of in-house resources

Respondents said that APAs should only be pursued when the company has the resources in place to lay the groundwork for the application and to manage the process through to completion.

In-house professionals need to have the time and commitment to proactively manage the process, respond to request for documentation, and chase the tax authority to keep the application moving.

Advance Pricing Arrangements (APAs): Information Hub

The experiences of tax authorities and taxpayers with its compilation of global survey data about the APA programs operating around the world.

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