APAs are advance agreements made between a taxpayer and one or several tax authorities to “lock in” a transfer pricing methodology for a specific set of intercompany transactions over a set period of time. By obtaining these agreements in advance, taxpayers gain the certainty that comes from knowing that their pricing arrangements will not be challenged by the Canada Revenue Agency while the APA is in effect, provided the taxpayer complies with the terms of the agreement. This delivers a range of benefits, including the avoidance of the penalties often associated with transfer pricing adjustments, the reduction of exposure to double taxation and the substantial reduction of annual compliance costs.
Yet, despite these advantages, APAs are not right for every entity. That’s because obtaining an APA can be both costly and time-consuming, and could take as long as five years to process. Due to these and several other factors, an APA usually only makes sense where a company is at high risk of transfer pricing dispute, is in an industry often subject to transfer pricing examinations and/or engages in extremely large and complex intercompany transactions.
If you are trying to determine if an APA may be right for you, this article will give you a high-level overview of the ins and outs of APAs, their advantages and disadvantages and some factors to consider before making a decision to engage in the APA process.
Here we explore what an APA is, its advantages and disadvantages and some factors to consider when deciding if an APA is right for you.