A unilateral advance pricing agreement is a legally binding contract between a multinational corporation and a single national tax authority. Its purpose is to establish the method the company will use to calculate transfer prices, in order to minimize or eliminate the risk of double taxation. It should be noted, however, that a tax authority not involved in the agreement is not obligated to adhere to the specified transfer pricing method.
A unilateral advance pricing agreement (APA) is a legally binding arrangement between a multinational company and a single national tax authority. Its purpose is to establish the method that the company will use to calculate transfer prices, thereby reducing or eliminating the risk of double taxation. For instance, if a US-based company has a subsidiary in France, it may enter into a unilateral APA with the French tax authority to determine how transfer prices will be determined between the two entities. This helps prevent the occurrence of double taxation on the same income in both countries. However, it is important to note that a unilateral APA does not guarantee complete avoidance of double taxation, as it only applies to the parties involved in the agreement. Other tax authorities are not obligated to follow the transfer-pricing method specified in the agreement.
A Unilateral APA is an agreement between a taxpayer and a tax authority regarding the transfer pricing method and pricing adjustments for cross-border transactions.
A Unilateral APA involves only one tax authority, while a Bilateral APA involves two tax authorities (the taxpayer’s home country and the country of the related party), and a Multilateral APA involves multiple tax authorities.
Any taxpayer engaged in cross-border transactions can apply for a Unilateral APA with the tax authority in their home country.
The main benefit of a Unilateral APA is the certainty it provides regarding transfer pricing arrangements, reducing the risk of disputes with tax authorities.
The timeline for obtaining a Unilateral APA can vary depending on the complexity of the transactions and the specific requirements of the tax authority.
Unilateral APAs can cover a wide range of cross-border transactions, including the sale of goods, provision of services, and the use of intangible assets.
Yes, a Unilateral APA can be renewed or modified if there are changes in the taxpayer’s business or the economic conditions affecting the transactions covered by the APA.
One potential drawback is the administrative burden and cost of preparing and maintaining the APA documentation.
While a Unilateral APA provides certainty, it is still subject to review and potential challenge by the tax authority if there are material changes in the taxpayer’s business or economic conditions.
The process for applying for a Unilateral APA typically involves submitting a formal application to the tax authority, along with detailed documentation and analysis of the cross-border transactions.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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