INTM422060 - Transfer pricing: methodologies: Advance Pricing Agreements: term of agreement

Term of the agreement and ‘Roll-Back’

25. An APA will be operative for a specified period from the date of entry into force as set out in the agreement. The business should propose a term for the APA, taking into account the period over which it is reasonable to assume that the method for dealing with the relevant transfer pricing issues will remain appropriate. Typically, the term is from 3 to 5 years, and a longer term will only be considered in exceptional circumstances.

26. It’s possible that a chargeable period to which the APA relates may have ended before agreement is reached. Section 224, TIOPA 2010, allows the APA to be effective for that chargeable period, and the agreement may set out any adjustments to be made for tax purposes as a consequence of the agreement.

27. An APA is intended to cover periods in advance of those where a return is already made at the date of application. However, where most of the proposed APA years have passed when agreement is reached, HMRC is open to considering adding prospective years. This would be dependent on each case and in particular whether the functional profile remains the same and, in the context of a bilateral APA, subject to discussions and agreement with the respective treaty partner.

28. The agreed transfer pricing methodology may be relevant for an earlier period, if the particular facts and circumstances surrounding those years are substantially the same. Consequently, in such circumstances, the business may wish to consider requesting that the bilateral APA also covers this earlier period and is used as a basis for amending their self-assessment return for those years. This possibility is dependent on the ability and willingness of both administrations to ‘roll back’.

29. Where HMRC has commenced an enquiry in advance of an APA request into the proposed covered transactions or other transactions that may materially impact on the proposed covered transactions, HMRC will expect the enquiry to be completed before admitting an APA for the future years, whether this is with roll back or not (in instances of any uncertainty in this regard, HMRC are willing to discuss at an EoI meeting whether other transactions would, in HMRC’s opinion, be ones that may materially impact on the proposed covered transactions). This is to ensure that the UK competent authorities, who may also find themselves involved in a subsequent MAP request, maintain independence from the audit function during the enquiry. Once the enquiry is complete, an APA request can then be made, including with rollback for earlier periods if the particular facts and circumstances surrounding those years are substantially the same. However, even if the desired result is an APA with roll-back of the methodology, the business should consider whether to instead or simultaneously submit a MAP request to protect time limits in the event that an APA is not agreed.

30. With regard to HMRC’s Profit Diversion Compliance Facility, where HMRC has written to a busines asking them to consider registering for the Facility before a formal interest in an APA has been expressed, HMRC expects the business to conclude on historic periods (e.g., through registering for the Facility, completion of enquiries or otherwise satisfying HMRC no further action is required). Therefore, as with enquiries, HMRC will only consider an APA request once these steps have been completed and the historic periods have been resolved.

31. In respect of overseas transfer pricing enquiries, HMRC’s consideration of an APA would be subject to the facts and circumstances of the case, including the overseas tax administration concerned and whether they would engage on the APA if an audit was underway or whether the APA would be paused during the audit for an indefinite timeframe. These discussions about likely progress could occur as part of an EoI, or as pre-EoI discussions, and we would listen to the business and adviser’s representations on this point and lean on our own experiences. We may also discuss with the other CA to obtain clarification, if needs be. In summary, if there were a realistic opportunity of meaningful engagement on the APA within a reasonable timescale, HMRC would not refuse on the basis of an overseas enquiry.