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Types of Advance Pricing Agreements
- Unilateral: Advance Pricing Agreements occurred between a taxpayer and the tax administration of the economy where he pays taxation
- Bilateral: APA occurred between tax administration and the taxpayers of the country hosting foreign tax administration.
- Multilateral: APA occurring between the tax administration and taxpayers of the country hosting and more than one foreign tax administrations
Benefits of APA (Advance Pricing Agreements)
APA is an effective tool used in several countries with established transfer pricing regimes to avoid potential disputes in a cooperative manner. It provides accuracy on the pricing and the Transfer Pricing Management to be accepted for particular intercompany transactions. Moreover, a bilateral or multilateral Advance Pricing Agreement also eradicates the risk of possible double taxation arising from controlled transactions.
The key Benefits of APA are:
- APA is a strategy to minimize the risk of a transfer pricing adjustment and offer surety over a negotiation process.
- The APA process also pursues to avoid tax risks or prevents double taxation
- Lower annual reporting cost Agreement and minimizes compliance cost and costs related to audit and demands over the APA term by eradicating the risk of transfer pricing audit, time-consuming litigations, resolving long-drawn.
- APA allows flexibility in enhancing practical approaches for complicated transfer pricing problem
- APA renewal offers outstanding leverage of cost, effort, and time while negotiating the APA.
- Minimize the record-keeping burden, as the taxpayer is aware of the mandatory documents in advance to be upheld to validate the agreed terms of the agreement.
