We have gathered feedback from the tax authorities of various key countries to find out the specifics about their APA programs. Read the following Q&A interview on the topic of APAs in Czech Republic with their tax authority.
Q: What are, in your view, the main achievements of your APA program?
A: Our APA program should provide certainty on the transfer pricing method. To meet this objective, individual requests should be decided within a reasonably short period of time. It can be said that the APA program in the Czech Republic provides this certainty aspect for taxpayers.
Issues and challenges
Q: What are the main challenges facing your APA program?
A: Our biggest challenge is to keep the time necessary for an APA reasonably short. An APA which spans several tax periods does not help business.
Q: Are there particular substantive issues (for instance, marketing intangibles or buy-ins for cost sharing arrangements, etc.) that have been more difficult to deal with?
A: No such APAs have been dealt with. The most difficult APAs can be those agreed in difficult and unstable economic conditions. Instability can lead to different conditions under which the APA was issued, with a negative impact on the whole APA.
Q: Are there particular procedural issues (for instance, APAs involving more than two jurisdictions or APAs where prior years are under the mutual agreement procedure and these involve large proposed adjustments, etc.) that have been more difficult to deal with?
A: If an APA request is submitted at the end of the tax period, the APA will likely not be decided by the time the tax return is filed for that tax period. On the other hand, if an APA is started at the beginning of a tax period, it will likely be finalized within the same year. Bilateral APAs always take longer as they involve more communication.
Q: Are there any other issues that you would like to bring to the attention of taxpayers as potentially difficult?
A: It should be noted that a Czech APA is about price setting methodology and not about particular prices. The APA process is not about jointly finding an appropriate method. The method proposed by the taxpayer can be either accepted or rejected by the tax authority.
Q: From your experience, what are the main best practices that you would recommend that taxpayers adopt in requesting and filing for an APA?
A: We would encourage taxpayers to be open. If there is an important piece of information which could have an effect on the APA we should know about at the beginning of the process. It’s always good to provide this information in a timely fashion since if we discover it later on in the process it prolongs the time necessary for the APA process.
Trends and outlook
Q: Based on your experience, have you noticed certain trends in any of the following topics:
- Type of APA requested (unilateral vs. bilateral)
A: Mostly unilateral.
- Type of transaction covered
A: Manufacturing, provision of services, distribution.
- Transfer Pricing Methodology (TPM) proposed
A: TNMM, with PLI cost +.
A: TNMM, with PLI cost +.
- Reason for APA filing (difficult transfer pricing audits/examinations; desire for certainty; other)
A: Desire for certainty.
- Are there particular industries seeking APAs?
A: Yes, the automotive sector is the most active.
Q: Looking to the future, what do you foresee for APAs?
- Do you see an increase vs. stability in terms of demand for APAs?
A: The number of APAs is increasing (both unilateral and bilateral).
- APA staffing needs for tax authority
A: The tax authority is adequately staffed. However, it takes a long time to develop transfer pricing expertise in newer staff.
- Mechanism to deal with triangular issues
A: A case by case approach.
A: Minimum arbitration is opened; it’s a long lasting process with uncertain result.
A: We would expect more APAs on financial transactions, on restructuring after investment incentive programs are utilized and on cost sharing agreements.