As transfer pricing evolves and as taxpayers and tax authorities gain more experience with APAs, most respondents believe that APAs will become even more common and valuable in the future. As demand for APAs rises, many respondents worry that tax authorities will not have the resources to keep up.
Some predict this will slow down the process and cause a drop in the number of files accepted into the program. Other respondents suggest that the rising caseload will prompt tax authorities to introduce a streamlined, expedited APA process that will enable them to process APA applications more quickly.
Australia introduced a new program in 2011 that separates APA negotiations into three streams depending on level of complexity. This risk-based approach speeds up the process for simpler APAs and allows more time for more complex ones. Administratively, the United Kingdom and other countries may take a similar risk-based approach, although, unlike Australia, they have not published the detail of this aspect of their approach or related guidelines.
Introducing risk-based approaches to APAs makes sense. APAs offer a valuable alternative to audits and tax dispute resolution in providing certainty for taxpayers and tax authorities. Some APAs are pursued solely for this reason – the company may be indifferent as to margins on which the distributor is taxed, as long as the rate is agreed in advance. Since there are no issues over facts or methods in such cases, using a risk-based approach could help tax authorities reach an APA quickly.
For APAs with complex transactions, facts may need to be validated and determining the applicable transfer pricing method may not be straightforward, warranting allocation of significantly more resources.
Streamlining features could include:
In addition to the ATO, there are signs that other tax authorities may be seeking to develop some form of expedited APA process. In 2011, the OECD launched a review toward simplifying administrative aspects of transfer pricing, which could result in revisions to its transfer pricing guidelines.
In a formal submission, KPMG’s Global Transfer Pricing Services practice has called on the OECD to consider the benefits of incorporating a process for expedited APAs into the OECD’s transfer pricing guidelines.
The OECD is encouraged to continue this work, and governments are encouraged to collaborate with the OECD and to adopt common policies and procedures for administering Fast-Track APA programs.
Based on this survey’s findings and the practical experience of KPMG member firms’ transfer pricing professionals in negotiating APAs on behalf of clients, it is clear that the adoption of expedited APA processes to complement existing programs could boost participation in these programs and increase the efficiency of transfer pricing administrations, for the benefit of all concerned.