Benefits and drawbacks
- Respondents said that negotiating an APA may consume a lot of time and resources.
- Completion times vary by country. The average time to process and complete APAs typically runs from 10 to 20 months.
- Most survey respondents felt that the benefits of the APA outweigh the costs.
- In addition to the stability and security of knowing how their transfer pricing will be treated, respondents are better able to manage internal resources and save time and costs by preventing future audits.
- Overall, respondents felt that the benefits of the APA outweigh the costs and that they would do it again—in the right situation.
Why some respondents chose not to pursue APAs
- A minority of respondents decided not to pursue APAs because they are not yet convinced of the merits of an APA or do not see the relevance to their business situation.
- More specifically:
- they believed their transfer pricing transactions were straightforward
- they felt that entering an APA and going through an audit would have the same outcome at best, and the APA could result in a compromise that would be less beneficial from a tax perspective
- they had struck informal arrangements with the tax authority that proved to be a simpler, lower-cost alternative.
- These respondents might consider pursuing APAs in future in the context of “unusual” transactions or specific types of transactions.
When should you pursue an APA?
- A company might decide to enter into the APA process for a variety of business reasons. The transaction’s size, novelty and complexity often drive the decision.
- Respondents also considered APAs when entering new markets and when their volume of business in a market was relatively high.
- A jurisdiction’s transfer pricing administration—including the tax authority’s levels of experience, flexibility and resources—could influence APA decisions.
- APAs should only be pursued where the company has the resources in place to lay the groundwork for the application and to manage the process.
- When considering potential costs and benefits, companies need to weigh the time and effort needed against the costs and risks that could arise defending against audits and resolving disputes over multiple years.
External transfer pricing advisors
- The majority of respondents look to external transfer pricing advisors for more than technical knowledge.
- The most important characteristics are:
- strong working relationships with the tax authorities and knowledge of their positions and practices
- strong working relationships and industry knowledge
- skills in listening and stakeholder engagement.
- In the future, companies are expected to engage their advisors to provide:
- more local and industry knowledge
- more strategic transfer pricing planning and APA advice
- more practical experience
- more project management.
Toward a Fast-Track APA process
- Most respondents expect that taxpayer demand for APAs will increase in the near term, but they worry that tax authorities will not have the resources to keep up with the increased demand.
- Some predict increase in demand for APAs will slow down the process even more and cause a drop in the number of files accepted into the program.
- Others suggest that the rising caseload will prompt tax authorities to introduce a streamlined, expedited APA process.
- The results of this survey support the view that tax authorities should adopt such “Fast-Track APA” processes to supplement existing programs.
- Doing so could boost participation and increase the efficiency of transfer pricing administrations, for the benefit of all concerned.
Members of KPMG’s Global Transfer Pricing Services and Global Transfer Pricing Dispute Resolution practices look forward to sharing insights on how policy makers can improve the efficiency and effectiveness of transfer pricing compliance and dispute prevention systems.