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HMRC internal manual

International Manual

Transfer pricing: methodologies: Advance Pricing Agreements: who may apply?

Who may apply for an APA?

An APA may be requested by

  1. Any UK business, including a partnership, with transactions to which the provisions of TIOPA10/Part 4 apply;
  2. Any non-resident trading in the UK through a permanent establishment;
  3. Any UK resident trading through a permanent establishment outside the UK.

Every APA request will be considered on the basis of its particular facts and features, but generally HMRC will be looking for one or more of the following characteristics:

  1. The transfer pricing issues are complex rather than straightforward. To HMRC “complex” means there is doubt as to how the arm’s length standard should be applied. Conversely, where reliable market comparables can be readily identified for the transaction(s) in point, that should enable transfer pricing methods to be employed in accordance with the OECD Transfer Pricing Guidelines, and HMRC is likely to regard such a situation as “straightforward”.
  2. Without an APA, it is likely that the taxpayer’s transfer pricing policies or issues would not be regarded as “low risk” and/or there is a high likelihood of double taxation.
  3. The taxpayer seeks to implement a method which is highly tailored to its own particular circumstances. HMRC will be willing to consider an innovative proposal providing it is compliant with OECD Guidelines, and not one that HMRC considers Treaty Partners would regard as being overtly tax aggressive.

APAs will not be declined solely by reference to the size of the transactions giving rise to the transfer pricing issues because HMRC recognises that complex transfer pricing issues can be encountered by smaller businesses as well as by large multinationals. However many small and medium enterprises are exempt from the UK transfer pricing legislation by virtue of TIOPA10/S166 and so there may be limited occasions where the APA process will be appropriate for smaller businesses.

Since April 2004 UK-to-UK transactions have been subject to transfer pricing legislation: but, HMRC does not generally see such transactions as likely to warrant an APA. However some UK-to-UK transactions, for example oil-related ring fenced trades, are specifically provided for in legislation.

When a UK business does obtain an APA and the provision in question is made or imposed with a related UK business TIOPA10/S222 enables the other UK business to claim to have their profits adjusted in line with the APA where they are disadvantaged. However, HMRC seeks to avoid such issues by encouraging the business to agree wherever possible that the transfer pricing methodology will determine the commercial charge for the provision as well as the charge for tax purposes.