The OECD Forum on Tax Administration has published on 28 September 2022 a manual on Bilateral Advance Pricing Arrangements, namely the Bilateral Advance Pricing Arrangement Manual (“BAPAM” or “Manual”). This BAPAM is part of the tax certainty work programme of the Forum on Tax Administration with as key focus “to guide tax administrations and taxpayers for streamlining the bilateral APA process through increased transparency and collaboration between competent authorities and taxpayers, and mitigating delays created by differences in individual jurisdiction’s BAPA processes”.
This Manual fits within the follow-up of the 15 OECD BEPS action points given that the Final Report of Action 14 included a best practice that stated that jurisdictions should implement BAPA programmes. Though not legally mandatory and based on strictly voluntary arrangements between competent authorities of the jurisdictions involved, BAPA procedures are highly encouraged as it provides advanced tax certainty to the relevant taxpayers and avoids time consuming and costly disputes afterwards.
The BAPAM provides more background information on the BAPA itself and its objectives in chapter one and focuses in chapter two on the key items making a BAPA process effective, including certain tips and trick as to streamline between competent authorities as much as possible. Chapter three provides the details of a typical BAPA process. Furthermore, the Manual also includes certain templates and examples which can be useful as practical resources. These are included in annex and consist of best practices (annex A), a sample BAPA timeline (annex B), a sample short-form position paper (annex C), potential critical assumptions list (annex D), a sample position matrix (annex E) and a sample BAPA Agreement (annex F).
Some of the insights provided by this manual are (i) the encouragement of a collaborative and co-operating process in which taxpayers and competent authorities are all engaged, (ii) the focus on a compromise within the arm’s length principle (which is relevant for Corporate Income Tax Return positions during BAPA negotiations) and (iii) the goal of having a reasonable timeline. There are also some (other) interesting best practices included in the manual that in practice will likely prove difficult to overcome (in the short term), such as ensuring adequate resources at the level of the competent authorities to deal with BAPA procedures in a timely manner.
We welcome this BAPAM as it emphasizes once more the importance of BAPA procedures, especially in this rapidly changing world whereby advanced tax certainty is more than appreciated from a business perspective. It is thoroughly hoped that competent authorities worldwide take this non-binding Manual into practice to move to more effective and efficient BAPA or multilateral APA procedures. Especially from a transfer pricing perspective, which includes per definition a cross-border transaction involving more than one taxpayer, it is in the benefit of both the taxpayer and the competent authorities to agree in a bilateral or multilateral manner to gain sufficient tax certainty at the level of the taxpayer(s).
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