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HMRC internal manual

International Manual

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

TERM OF THE AGREEMENT AND “ROLL-BACK” {#}

  1. 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 three to five years and a longer term will only be considered in exceptional circumstances.
     
  2. It is 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.
     
  3. An APA is intended to cover periods in advance of those where a return is already made at the date of application. In situations where returns for that APA period are later made during the APA process HMRC may be willing to consider extending the APA term. Whether this extension is appropriate would depend on the particular facts and circumstances surrounding that application and the views of the treaty partner(s) involved in the process.
     
  4. The agreed transfer pricing methodology may be relevant for an earlier period and to the resolution of any transfer pricing enquiries raised for earlier periods 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”.
     
  5. Except where “roll-back” is being considered, the request for an APA in respect of future years will not in itself affect any transfer pricing enquiry into earlier years. However, to the extent such an approach is appropriate and feasible, HMRC will co-ordinate the APA request in respect of future years with any transfer pricing enquiry in respect of prior years in order to improve overall efficiency and reduce duplication of enquiries.