Australia Issues Guidance On APAs

by Mary Swire, Tax-News.com, Hong Kong

31 March 2011

The Australian Tax Office (ATO) has released guidance for taxpayers, their advisers and ATO staff on new processes designed to enable its advance pricing arrangement (APA) program to cope with increasing demand for APAs and the increasing complexity of transactions for which APAs are requested.

The practice statement is a comprehensive guide to the ATO’s renewed APA Program and replaces the Tax Office’s previous guidance, Taxation Ruling TR 95/23.

The ATO’s APA program has been in operation since 1991 when the ATO and the United States Internal Revenue Service concluded the world's first APA. APAs allow companies that are members of a multinational group to reach an agreement with the tax office on how to apply the arm’s length principle in their future dealings with international related parties.

The arrangement establishes the transfer pricing method they must use for transactions covered by the APA, generally covers three to five years, and may be reviewed if their trading circumstances change.

The APA can be unilateral between the ATO and the taxpayer, bilateral between the ATO, the taxpayer and one tax treaty partner, or multilateral between the ATO, the taxpayer and more than one tax treaty partner.

APAs begin with pre-lodgment meetings, followed by a formal application, based on what it is agreed at pre-lodgment.

Bilateral and multilateral APAs are entered into under the Mutual Agreement Procedure Article of the relevant double tax agreement. Unilateral APAs are entered into under the ATO’s administration of the income tax law.

As at March 1, 2011 the ATO had a total of 109 APAs in place: 58 with large business and 51 with small to medium enterprises.

The ATO has built transfer pricing expertise through a network of over 100 members by a combination of formal and informal training and transfer pricing casework carried out under specialist supervision, supplemented by targeted recruitment of transfer pricing specialists from the private sector.

Tax Commissioner Michael D’Ascenzo said that the new APA processes in the practice statement are the result of extensive consultation and co-design with industry on the principles of the program:

“Following recommendations from an independent review commissioned by the ATO, we worked closely with representatives from the accounting profession and the Corporate Tax Association to look at ways to improve the effectiveness and efficiency of the program. It’s a great example of how co-design can have a positive result for the community.”

“The new processes outlined in the practice statement will ensure that issues are identified upfront and the process for resolving them agreed with the taxpayer to avoid surprises down the track.”

“I am confident of the program’s sustainability into the future and it will continue to be an important part of our international tax strategy. It also reflects the choice available to taxpayers to lock in high levels of certainty if that is what they want. APAs add to the processes such as private ruling requests and Annual Compliance Agreements which similarly provide taxpayers with high levels of certainty."

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