Advance Pricing Agreement (“APA”)
An APA is a dispute prevention facility under which IRAS and the taxpayer or relevant Avoidance of Double Taxation Agreement (DTA) partner agrees in advance on a set of criteria to ascertain the pricing of a taxpayer’s related party transactions for a specific period of time.
It is one of the measures to mitigate tax risks arising from transfer pricing and provides certainty of tax treatment for related party transactions.
RSM Singapore has the expertise to help clients with the complex process of establishing the APA. We recently signed and concluded for a client a Bilateral Advance Pricing Agreement (“BAPA”) which involved extensive discussions and agreement between the tax authorities of two countries.
RSM Singapore was involved in the entire process, commencing with the pre-filing meetings in 2018. The pricing policy proposed by RSM Singapore was fully accepted by the Singapore tax authorities as well as the tax authorities of the other country.
What you need know about the APA
There are three types of APA:
- Unilateral APA – Agreement between IRAS and the taxpayer. The Agreement is non-binding on the foreign DTA partner.
- Bilateral APA – Agreement between IRAS and a DTA partner on the transfer pricing between entities in their respective jurisdictions. The Agreement is binding on the relevant parties.
- Multilateral APA – Agreement between IRAS and 2 or more DTA partners on the transfer pricing between entities in their respective jurisdictions. The Agreement is binding on all relevant parties.
APA procedures at a glance
The APA process consists of four steps:
Step 1: Pre-filing meeting
An applicant is required to provide, minimally one month before the pre-filing meeting, the basic background information, preliminary or completed transfer pricing analysis result, and any other relevant information for IRAS’ assessment of the merits of the APA request. This meeting’s purpose is also to identify the critical and relevant areas of focus, in order to help expedite and smoothen the APA process.
IRAS will provide guidance on the information to be provided in the formal application if it is inclined to accept the APA request.
Step 2: Formal Application
Applicant should submit its formal application to IRAS within 3 months of IRAS giving its indication that the application can be submitted. The application should include all relevant details and documentation.
In respect of a bilateral or a multilateral APA, the applicant should submit the application simultaneously to IRAS and the relevant foreign competent authoritie(s).
Step 3: Review and negotiation
IRAS will inform the applicant if the application has been accepted or declined in writing. The acceptance of an APA application does not necessarily mean that IRAS endorses all the proposals in the taxpayer’s application. At this stage, IRAS may seek clarification or further information from the applicant, hold discussions with the applicant, or conduct site visits to the applicant’s premises which may include interviewing the applicant’s key personnel.
IRAS will also indicate the expected timeline and update the applicant on the progress and the outcome of the competent authorities’ negotiations.
Step 4: Implementation
Once IRAS’ position concerning the APA application has been agreed upon, IRAS will meet the applicant to discuss the details and implementation of the agreement. The applicant will have to decide whether the agreed outcome is acceptable.
Once an APA agreement becomes effective, the applicant is to comply with the APA terms stipulated in the agreement. The taxpayer must file an annual compliance report to demonstrate compliance with the terms and conditions of the APA agreement together with its income tax return.
APAs, especially in the case of bilateral or multilateral agreements, are the best facility to prevent double taxation and to provide certainty to a taxpayer’s cross-border related party transactions. However, it requires a lot of resources, both manpower and time, to reach an agreement amongst all the relevant parties (tax authorities and taxpayers). As such, companies should evaluate their situations and strike an optimal balance.
RSM’s strong global presence and technical experience allow us to help you proactively assess and devise an overall strategy in relation to any cross-border tax controversies.
If you would like to speak to our specialists, please contact:
T: +65 6594 7896
Koh Puay Hoon
Partner & Head of Tax
T: +65 6594 7820
International Tax Partner
T: +65 6594 7852
T: +65 6594 7860