TPG2022 Chapter IV Annex II paragraph 3

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Many jurisdictions have had, for some time, procedures (e.g. rulings) enabling the taxpayer to obtain some degree of certainty regarding how the law will be applied in a given set of circumstances. The legal consequences of the proposed action are determined in advance, based on assumptions about the factual basis. The validity of this determination is dependent upon the assumptions being supported by the facts when the actual transactions take place. The term APA refers to a procedural arrangement between a taxpayer or taxpayers and a tax administration intended to resolve potential transfer pricing disputes in advance. The APA differs from the classic ruling procedure, in that it requires the detailed review and to the extent appropriate, verification of the factual assumptions on which the determination of legal consequences is based, before any such determination can be made. Further, the APA provides for a continual monitoring of whether the factual assumptions remain valid throughout the course of the APA period.

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