Do Advance Pricing Agreements Still Provide Certainty in the Netherlands?

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

The authors assess whether the anticipated benefit of certainty arising from advance pricing agreements is still valid in the current tax landscape of the European Union state aid discussions and OECD and EU exchange of information on tax rulings. The authors also refer to a recent report by the Organization for Economic Cooperation and Development and the International Monetary Fund to Group of 20 country leaders, which focuses on the much-desired need for tax certainty.

Eduard Sporken Maurits Stuyt

By Eduard Sporken and Maurits Stuyt

Eduard Sporken is a director and Maurits Stuyt is a tax consultant at Meijburg & Co. Tax Lawyers in the Netherlands. Both specialize in KPMG's global transfer pricing services.

An advance pricing agreement, or APA, is intended to provide taxpayers with advance certainty. There are numerous reasons why taxpayers obtain APAs, some of the more common being protection from a penalty; protection from double tax; and certainty about their tax status, the transfer pricing method used, the interquartile range and their tax position for accounting purposes or for tax return disclosure purposes. The factors addressed in this article are not exhaustive, but tend to address the most common APA benefits sought, including those addressed by the European Union Joint Transfer Pricing Forum. This forum mentions one benefit that specifically applies to U.S. multinationals—taxpayers that have obtained APAs do not have an uncertain tax position that would need to be reported on Schedule UTP for U.S. federal income tax liabilities.

A prominent feature of APAs is that they are tailored to each request. Solutions for individual situations are sought within the limits of the law and they thus provide certainty on corporate tax matters. A unilateral APA is relatively less complex, provided arm’s-length documentation and pricing is available. One means of avoiding double taxation in transfer pricing is through a bilateral or multilateral APA. The main advantage of a bilateral or multilateral APA is that it, in principle, offers complete certainty and should also avoid double taxation. The downside of a bilateral or multilateral APA is that both or all competent authorities must be willing to cooperate and reach agreement in order to avoid double taxation and provide certainty for the taxpayer. This can be a time-consuming and costly exercise, which generally is well worth the effort.

OECD view on APAs

According to the Organization for Economic Cooperation and Development, APAs are mainly intended to provide taxpayers with certainty about the tax treatment of their cross-border activities. An APA assures a taxpayer that, during the term of the APA, it will not be subject to a costly audit with an uncertain outcome in respect of the relevant transactions covered by the APA, provided that the conditions of the APA are continuously met. Bilateral or multilateral APAs extend that assurance to the treatment of the relevant transactions in more than one country, and also provide protection against economic double taxation. These are important considerations from an investment climate perspective. According to the OECD, it is however imperative that APAs are not used to provide preferential or advantageous treatment to individual taxpayers as part of a “tax incentive” strategy.

October 2015 was an extremely interesting month for taxpayers, tax authorities and tax advisers worldwide. The OECD released the final reports from its Action Plan on Base Erosion and Profit Shifting, a two-year effort to rewrite the global tax rules to curb profit shifting by large multinational companies. While the reports issued under the plan's 15 action items provided much-needed clarity on a number of common tax issues, including the challenges of interest deductions and dealing with permanent establishments, the end result is that taxpayers will be confronted with amendments to tax legislation and increased compliance burdens in many jurisdictions and even more complexity in the transfer pricing arena. Some of the structures taxpayers have in place may need to be modified. Uncertain times create a need for the certainty which APAs provide.

The OECD’s BEPS Action 5 (which also covers transparency) and 13 (transfer pricing documentation) provide for more transparency on rulings and APAs. What taxpayers now also have to take into account is the disclosure of APAs in the transfer pricing master file. The final OECD Action 13 report requires taxpayers to disclose all APAs and advance rulings in place. Copies of existing unilateral and bilateral or multilateral APAs and other tax rulings or APAs, to which the local tax jurisdiction is not a party and that are related to controlled transactions in the respective local transfer pricing file, must be made available.

Finally, the authors refer to the joint report by the International Monetary Fund and the OECD for the Group of 20 Finance Ministers, published March 18, 2017, which also discusses APAs. This report responds to the request from the G-20 leaders at their summit in Hangzhou, China, in September 2016 for the OECD and the IMF to work on issues of tax certainty. At a time when good progress has been made in fighting tax evasion and aggressive tax avoidance through increased transparency and the BEPS project, it is also important to focus on tax certainty, the report emphasizes. In this context, the importance of providing greater tax certainty to taxpayers to support trade, investment and economic growth has become a shared priority of governments and businesses.

OECD BEPS Action 5

Part of the outcome of the OECD’s BEPS Action 5 on harmful tax practices was an approved framework for the compulsory, spontaneous exchange of information regarding rulings. This exchange of information includes six categories of taxpayer-specific rulings:

  • 1) rulings relating to preferential regimes;
  • 2) unilateral APAs or other cross-border unilateral rulings in respect of transfer pricing;
  • 3) cross-border rulings providing for a downward adjustment of taxable profits;
  • 4) permanent establishment rulings;
  • 5) related-party conduit rulings; and
  • 6) any other type of ruling agreed by the OECD Forum on Harmful Tax Practices that in the absence of spontaneous information exchange gives rise to BEPS concerns.

As a general rule, exchange of information on rulings for the six categories needs to take place with:

  •  the countries of residence of all related parties with which the taxpayer enters into a transaction for which the ruling is granted or that gives rise to income from related parties benefiting from a preferential treatment (this rule also applies in a PE context); and
  •  the residence country of the ultimate parent company and the immediate parent company.

The obligation to spontaneously exchange information applies not only to future rulings, but also applies to rulings that relate to earlier years. Past rulings do not have to be exchanged if they were issued before 2010, or if they were issued on or after Jan. 1, 2010, and were not in effect from Jan. 1, 2014. Past rulings should be exchanged if they were issued on or after Jan. 1, 2010, and were still in effect from Jan. 1, 2014, or if they were issued between Jan. 1, 2014, and April 1, 2016.

The exchange of information on these past rulings should have been completed by Dec. 31, 2016. Exchange of information on new rulings will take place as of April 1, 2016.

Of course, the actual exchange of information in line with the BEPS framework can only take place between counties on the basis of an international obligation such as a tax treaty or a tax information exchange agreement.

APAs in the EU and the view of the European Commission

In a press release issued Aug. 30, 2016, the European Commission stated that tax rulings “as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.” However, a tax ruling must also respect the EU state aid rules. The aim of these rules is to safeguard free competition within the EU common internal market. Measures that distort or threaten to distort competition are forbidden. Tax is also covered by the state aid rules, irrespective of whether it concerns legal provisions or tax rulings. As for taxes, EU member states may not give companies a selective benefit—that is, a better tax treatment than other, similar companies receive—via tax rulings or otherwise. The EU state aid rules are to a large extent based on the principle of equal treatment. As a general rule, for state aid purposes, companies that belong to a group are considered comparable to stand-alone companies. As a result, when determining for state aid purposes whether a company that belongs to a group has received a selective tax benefit, reference is made to the taxable profit a stand-alone entity would have realized or to the tax treatment that entity would have received. More specifically, also for state aid rules, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses—that is, it should follow the arm's-length principle. However, the EU Commission’s view on the arm’s-length principle under the state aid rules is not always identical to the arm’s-length principle as applied and interpreted by the OECD guidelines.

According to the most recently available statistics, the total number of APAs in the EU, including unilateral, bilateral and multilateral agreements, at the end of 2015 was significantly higher than in 2011. However, this data predates the BEPS project. There was a sharp increase in the number of mutual agreement procedures initiated in OECD member countries—from 3,838 cases in 2011 to 6,176 cases in 2015.

The European Commission is investigating specific tax rulings and APAs in several EU member states to establish whether EU state aid rules have been violated.

APAs in the Netherlands—a brief introduction

In the Netherlands, the tax authorities have a specialist team for APAs and advance tax rulings (ATRs), which is responsible for all aspects of the APA and ATR process. This team is closely associated with the authorities’ Transfer Pricing Coordination Group and one of its members participates in the Transfer Pricing Coordination Group, so that applications for APAs and ATRs can be processed efficiently. The process and the time needed depends on the facts and circumstances. Having a mature ruling practice in place is considered a key feature of the Dutch tax system and the publication of the final BEPS reports did not cause it to become a contentious issue. The popularity of the Dutch ruling and APA practice is reflected in the number of APAs concluded. The APA statistics for 2014 show that of the 264 requests submitted for an APA:

  •  203 were granted
  •  three were denied; and
  •  58 were either withdrawn or not completed.

In 2015, 236 APAs were granted. In 2016, that number fell to 191.

The average processing time has remained stable in the Netherlands.

The attitude of the Dutch tax authority toward APAs and ATRs concluded in accordance with objectives set by the OECD is positive. They are very much in favor of using the arrangements as a tool for dispute settlement. This attitude did not change after the Dutch state aid case initiated by the European Commission, which challenged one APA issued by the Dutch tax authority. In light of this case, it is important to note that the commission does not consider Dutch tax rulings or APAs to be problematic, as such. After the release of the commission’s final report on the Dutch state aid case, where it concluded that the Netherlands provided state aid to the company by means of an APA, businesses in the Netherlands expressed their concerns about the environment for APAs and ATRs. This concern was addressed by the Dutch government in a letter from the State Secretary for Finance in which he defended the Dutch ruling and APA practice as always having been in line with international tax law. More recently, the State Secretary for Finance reiterated that the advance certainty provided by APAs and ATRs “is one of the strengths of the Dutch investment climate and I will support this policy. This is possible as this certainty is provided within the limits of the law, policy and other rules.”

The recently released internal policy note of the DTA on the APA and ATR practice underlines this, stating that an “APA or ATR looks merely after the explanation of Dutch tax legislation on a specific fact pattern and is expressly not a favorable of the corporate tax base or the tax rate for tax payers.” It also mentioned that the APA and ATR team operates strictly as required by the law as a result of close interaction with the highest officials within the Dutch tax authority.

The tax authority’s desired focus is bilateral and multilateral APAs despite the fact that unilateral APAs were and are possible (see comments further below).

Dutch implementation of OECD BEPS Action 13

In addition to the introduction of country-by-country reporting, the Dutch government Jan. 1, 2016, announced more stringent documentation requirements for multinational entities that are tax resident in the Netherlands and are part of a group that has a consolidated turnover exceeding 50 million euros ($54 million). From fiscal years starting as of Jan. 1, 2016, the group entity will be required to prepare and maintain a master file that provides an overview of the multinational as a whole, including the nature of its activities, its general transfer pricing policy and its global allocation of income and economic activities. A local file also needs to be in place. That file reflects information relevant for the transfer pricing analysis of transactions between the taxpayer and related parties in other tax jurisdictions. Both files can be prepared and maintained in either English or Dutch. The wording of the law is in line with the master file and local file as described in the BEPS Action 13 report. A new and important requirement is that the master file and the local file be part of the Dutch entity’s accounts and records prior the expiration date for filing of the tax return. This is a major change from current practice, which requires the taxpayer to provide transfer pricing documentation within two months of a formal request by the tax authority. Failure to comply with the documentation requirements results in a shifting of the burden of proof from the tax authority to the taxpayer.

According to the authors, the increased Dutch transfer pricing documentation requirement should facilitate obtaining an APA in the Netherlands because the same BEPS Action 13 documentation should represent the entire transfer pricing file and all factual information required to support the APA request.

Contents of a Dutch APA

An APA may include all transfer pricing issues on which a taxpayer wishes to obtain advance certainty. The taxpayer has some degree of flexibility in limiting the request to specific associated entities or specific transactions. Because an APA determines the pricing of future transactions, it must contain critical assumptions. These cover aspects such as operational, structural and economic conditions that may affect the reliability of the pricing method. The purpose of the critical assumptions is to protect both the taxpayer and the tax authorities from the risk that an agreement will result in an outcome that is not in accordance with the arm’s-length principle. An APA is usually valid for four or five years, in accordance with the Dutch APA decree. The taxpayer must present arguments in support of the requested term. The APA decree provides for exceptions to the four-to-five-year period—for example, when the Dutch activities (for example, a new manufacturing site) are covered by long-term contracts.

The Dutch APA decree also provides for retroactive effect or rollback if:

  •  the transactions to which the APA request relates have already taken place in whole or in part; and
  •  the relevant facts and circumstances in the lapsed period are comparable with the facts and circumstances that form the basis for the APA request.

The Dutch tax authority does not assess an APA request in isolation, but rather considers all the relevant facts and circumstances of the transactions for which advance certainty is requested. This was also confirmed by the European Commission, in its comment that the Netherlands seems to generally carry out a thorough assessment based on comprehensive information requested from the taxpayer.

European ruling process requirements by the European Commission in the light of EU state aid

The approach taken by the European Commission resulted in a number of state aid investigations in Europe during the last few years. The following can be deduced from the commission’s criticism of transfer pricing in all the investigated cases.

According to the commission, any report on transfer pricing underlying a tax rulingor APA should not appear to target a certain predetermined corporate tax base. Accepting a tax base with only a marginal variation, the tax authority granting a tax ruling or APA seems to have disregarded any possibility of an increase or significant reduction in the activities. This type of approach—which, according to the commission, is effectively a fixed tax base—can reflect economic reality only if there is a high probability that the underlying activities of the taxpayer remain stable throughout the term of the tax ruling.

The commission contests rulings or APAs if negotiated and seemingly insufficiently substantiated by reference to comparable transactions. The commission rejects any hint of a ruling being “reverse engineered” so as to arrive at a certain taxable income, without sufficient economic basis. The commission further notes that any tax ruling or APA request assessed within a very short period after the receipt of the first letter constituting the ruling or APA request does not seem to indicate a due process. Furthermore, if a tax authority accepts a reduction of the profit margin after a certain level of costs, the commission may assume that this is motivated by employment considerations and not based on the arm’s-length principle.

The commission also has doubts about rulings and APAs that are valid for a longer period (such as 15 years) without revision, given possible changes to the economic environment (including the evolution of sales) and the required remuneration levels for the taxpayer. The commission considers the duration of rulings or APAs concluded by other EU member states as a benchmark.

Any capital allowances (for example, tax deductions on property, plant and equipment) must be motivated in a ruling or APA by economic conditions and substantiated also on the basis of local tax law.

Future APA request processes in the EU should therefore avoid the elements noted above.

U.S. view on European state aid procedures

In February 2016, U.S. Treasury Secretary Jacob Lew wrote to the commission and requested that the EU reconsider the state aid investigations against U.S. multinationals. Lew’s letter asserted that such unilateral moves set disturbing precedents. In his letter, Lew referred to testimony presented by a senior international tax officer of the U.S. Treasury at a December 2015 hearing of the U.S. Senate Finance Committee, and asserted that the commission:

  •  is seeking to impose penalties retroactively based on a new and expansive interpretation of state aid rules;
  •  appears to be disproportionately targeting U.S. companies;
  •  is adopting an approach that appears to target, in at least several of its investigations, income that EU member states have no right to tax under international tax standards; and
  •  could undermine U.S. tax treaties with EU countries.

For now, the above appeal seems to have had little effect on the commission, as on June 6, 2016, it published its first decision on two Luxembourg tax rulings granted to McDonald’s, a U.S. multinational. However, the Commission is now also investigating a French and Swedish group for unlawful state aid.

EU exchange of rulings and APAs

As of Jan. 1, 2017, the EU has amended the Directive on Administrative Cooperation (DAC 3) to provide a framework for the automatic exchange of information on tax rulings. DAC 3 requires EU countries to automatically exchange information on advance cross-border tax rulings and APAs. DAC 3 is in line with OECD BEPS Action 5 but it covers a broader scope of rulings and a broader range of recipients, with information on rulings being exchanged with all EU countries.

The obligation to automatically exchange information applies not only to future rulings, but also to some rulings that relate to earlier years. Rulings do not have to be exchanged if they were issued before 2012, or if they were issued on or after Jan. 1, 2012 but were no longer in effect from Jan. 1, 2014, onward. Rulings should be exchanged if they were issued on or after Jan. 1, 2012, and were still in effect from Jan. 1, 2014, onward or were issued between Jan. 1, 2014 and Jan. 1, 2017.

For rulings issued on or after April 1, 2016, the information exchange will take place after Jan. 1, 2017.

The European Commission will maintain a secure central directory where the information exchanged will be stored. This directory will be accessible to all EU member countries and to a smaller extent to the European Commission. This directory will enable EU countries to assess whether a previous ruling or transfer pricing agreement with another EU member could have consequences for taxation in the first country. EU countries may request additional underlying information. The first automatic exchange of information between the EU member countries will take place later in 2017. This EU exchange of information on rulings covers only rulings that have been issued by EU countries.

Dutch impact of the EU exchange of rulings and APAs

This amended EU directive was transposed into Dutch law, but there is also another legal basis in the Netherlands for the automatic exchange of rulings and APAs. These information exchange measures entered into effect Jan. 1, 2017, and apply to all cross-border rulings and prior agreements concerning transfer prices that were concluded, amended or renewed since 2012. This also applies to agreements that are no longer in effect but that were concluded after Jan. 1, 2014. The Netherlands will exchange information only on the basis of a tax treaty, the Convention on Mutual Administrative Assistance in Tax Matters or a tax information exchange agreement.

The following details of rulings, APAs and transfer pricing agreements with cross-border consequences will be exchanged:

  •  identification of the relevant person or group of persons (with the exception of individuals);
  •  a summary of the content of the previous cross-border ruling or transfer pricing agreement;
  •  the dates on which the previous cross-border ruling or transfer pricing agreement was issued, took effect and ended;
  •  the type of previous cross-border ruling or transfer pricing agreement;
  •  the amount of the transaction (or series of transactions) of the previous cross-border ruling or transfer pricing agreement;
  •  in the case of a previous transfer pricing agreement, a description of the method that was used; and
  •  the EU member states on which the previous cross-border ruling or transfer pricing agreement had an impact.

January 2017 status on exchange of Dutch rulings

In Jan. 11, 2017, letter, the State Secretary for Finance updated the lower house of the Dutch parliament on the two paths that the Netherlands is following with regard to the automatic exchange of rulings: OECD Action 5 of the BEPS plan and EU Council Directive 2015/2376 of Dec. 8, 2015.

Exchange of existing rulings delayed

This letter mentions that the Netherlands will not meet the deadlines imposed by the OECD and the EU for exchanging existing rulings. The main reasons are:

  •  the majority of Dutch rulings are not centrally registered, so a manual check will have to be performed by the tax authority of about 13,000 dossiers;
  •  the Netherlands appears to have many more rulings that need to be exchanged—approximately 4,750 existing and 2,000 annual new rulings—than other EU member countries; and
  •  the completion of the standard forms, which includes summaries of the rulings, is taking more time than anticipated.

The letter continues by noting that the Netherlands has informed the OECD that the Dutch tax authority needs an extra year—until Dec. 31, 2017—to exchange the relevant rulings.

Steps to speed exchange process

The following steps have been taken in the meantime to speed up the exchange of information process:

  •  taxpayers and their tax advisers are, and will remain, involved in filling in the standard ruling exchange forms;
  •  the tax authority has created guidance for completing these standard forms and wil be provided to taxpayers and their advisers on request;
  •  internal training is being, and will continue to be, provided to the tax authority on identifying rulings and completing the standard forms; and
  •  with regard to cross-border rulings, the Decree on Fiscal Administrative Law (Besluit Fiscaal Bestuursrecht) will be amended so that a ruling exchange form will form part of any future ruling request.

Dec. 31, 2016 and March 31, 2017 exchange status
OECD & EU perDec. 31, 2016 OECD & EU perMarch 31, 2017
Number of old rulings on which exchange took place303 693
Number of standard exchange of ruling forms for old rulings1.1422.178
Number of new rulings on which exchange took place86 126
Number of standard exchange of ruling forms for new rulings361 505

Rulings may be exchanged with more than one country, so the number of standard ruling exchange forms is by definition much larger than the number of rulings. As of March 31, 2017 the exchange of rulings took place only in an OECD context, as the EU countries are working on a central database to electronically exchange rulings within the EU in an automated manner.

KPMG EU Tax Center Survey

The KPMG EU Tax Center’s high-level survey on the impact of state aid investigations on the APA process is reproduced below. A survey among KPMG member firms was performed in Austria, Belgium, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland and the U.K. This survey showed that the European Commission’s state aid investigations do not seem to have had a major impact on the process of obtaining APAs—in legal or in practical terms—in the EU countries surveyed. However, in several countries it has become more difficult to obtain an APA, mainly due to resource constraints on the tax authority rather than as a consequence of the state aid investigations. The fact that APAs and rulings will be exchanged with other EU countries also adds to the complexity of the APA process, which has resulted in more, as well as more detailed, APA information being required in some jurisdictions.

Final considerations: APAs still make sense in the Netherlands

In the Netherlands, the burden of proof in transfer pricing cases generally rests on the tax authority, provided that the taxpayer presents documentation supporting the company’s transfer pricing policy and demonstrates that the application of its policy is consistent with the arm’s-length principle. If the information supplied constitutes sufficient proof, it is up to the tax authority to provide reasonable evidence that the suspected prices breach the arm’s-length principle and thereby cause the burden of proof to shift to the taxpayer. If there is a material transfer pricing risk, the taxpayer should obtain advance certainty in an APA for the future and a rollback into this APA of past years, preferably prior to, but otherwise as part of, the tax audit process. Following the BEPS Action 13 transfer pricing documentation recommendations should result in complete and sufficient supporting documentation for a Dutch APA request.

With the release of the BEPS reports in October 2015, taxpayers need to consider a few new points when deciding whether it would be in their best interests to obtain an APA. In general, it is better to request an APA in advance of an audit. An audit deals with past events, while an APA covers future transactions and provides advance certainty. This could save time and costs related to the tax audit.

The authors refer to the March 18, 2017, report from the OECD and the IMF on tax certainty, which emphasized the importance of providing greater tax certainty to taxpayers to support trade, investment and economic growth, the last of which has become a shared priority of governments and businesses.

Weighing up the current advantages and disadvantages of APAs, the authors believe that taxpayers should always take the merits of an APA or ruling into consideration, even if it is not always pursued. The most important benefit sought is advance certainty. As APAs can also be concluded with retroactive effect, they offer an interesting alternative to a mutual agreement procedure case. Although the majority of APAs concluded in the Netherlands in the past were unilateral, the authors expect to see more bilateral and multilateral APAs going forward in the Netherlands and elsewhere given the focus of foreign tax authorities and the European Commission. Taxpayers should take into consideration that although information is being exchanged among European tax administrations, with the Europe Commission and with other OECD countries, only certain information on APAs and rulings will be exchanged.

Taxpayers should decide whether to conclude an APA on a case-by-case basis, based on the facts and on their risk strategy.

Appendix: High-level APA Survey In Selected European Countries

The comments below are the result of a high-level survey analyzing the impact of the European Commission’s state aid investigations on the local advance pricing agreement practices. This survey was conducted by the KPMG EU Tax Center among KPMG member firms from 13 selected EU countries in October and November of 2016.

1. Availability of APA (13)
Austria Unilateral APA is possible for some areas of tax law including transfer pricing; for bilateral APAs there is no procedural law but in practice it should be possible under the respective DTA provision.
Belgium Yes.
Denmark Bilateral APAs are available. Unilateral APAs were allowed previously but rarely found in practice. In the past an informal consultation leading to a common understanding on certain arrangements could be held to a certain extent. Such approach is not likely to be followed any more due to risk of criticism/bad standing.
France Yes. The tax authorities favour bilateral APAs. Unilateral APAs are limited to specific cases (no APA process in the other State, transactions with many States, transactions on specific matter or of limited complexity, small or medium-sized company).
Germany Bilateral APAs are available, unilateral are only allowed if a DTT does not exist with the country of the transaction partner.
Greece Yes, both unilateral and bilateral APAs are available.
Hungary Yes, it is possible to obtain unilateral and bilateral APA's in Hungary. The types of APAs in Hungary are the following: unilateral, bilateral and multilateral.
Ireland Yes.
Italy Yes.
Luxembourg Yes it is possible to obtain unilateral and/or bilateral APAs . The circular released in 2011 explains the conditions to be met to obtain a unilateral APA for intra-group financing activities.
Netherlands Yes, unilateral, bilateral and multilateral (we refer to the June 3, 2014 Dutch APA decree).
Poland Yes, it is possible to obtain unilateral, bilateral and multilateral APAs in Poland.
UK Yes. Subject to a size and complexity threshold, HMRC will accept applications for bilateral APAs. Unilateral APAs may be possible in rare circumstances, but HMRC is increasingly resistant to them.
2. How frequent are APAs (13)
Austria Unilateral APA can be concluded for an issue of legal uncertainty. Therefore, only the transfer pricing methodology can be subject to a ruling, never the actual "price" determined by such. For a bilateral APA, the avoidance of double taxation is the subject and target of the APA.
Belgium Of the APAs or transfer pricing rulings concluded in Belgium, 95% are unilateral APAs and 5% bi-or multilateral.
Denmark Denmark has a long history of successful bilateral APA procedures with multiple jurisdictions including the US, China, Japan Also European countries are in recent years included in the portfolio, i.e. bilateral APAs are very common and well established. Denmark appears to be fully committed to the transparency programme as well as anti-tax avoidance initiatives.
France APAs are common.
Germany APAs are very common and well established.
Greece APAs are available since 1 January 2014. Currently 1 unilateral APA has been concluded in Greece and 3 bilateral APAs are under negotiation.
Hungary Unilateral APAs are rather frequent. However, no concluded bilateral and multilateral advanced pricing agreements exist yet. According to our information the first bilateral agreement is in progress at the moment.
Ireland Rarely - a formal APA programme was only established in 2016.
Italy Unilateral are common, bi-multilateral are less frequent but increasing in number.
Luxembourg There is less and less unilateral APAs because of the automatic exchange of information. Bilateral APAs are quite rare.
Netherlands It is quite common to agree upon a unilateral APA, bi- and multilateral APA are relatively quite rare.
Poland Majority of APAs concluded are unilateral. However there are not more than 50 decisions concluded in the past 10 years - so it cannot be concluded that this vehicle is used very extensively.
UK There is a well-established process.
3. Length of APA procedure (13)
Austria For unilateral ruling roughly six months. For bilateral APA very difficult to estimate.
Belgium Unilateral APAs 12 months. Bilateral APAs 18 to 24 months.
Denmark No statistics available. However, for case of typical complexity involving countries with whom Denmark has a good working relationship we expect that a bilateral APA could be delivered in 18-24 months subject to the process is handled and prioritized in an optimal way.
France There is a high number of APA requests pending and the number of APA applications is increasing. The team in charge of the APAs within the Tax Administration is limited. Consequently, it takes approx. 2 to 3 years to conclude a bilateral APA (prefilling to formalization).
Germany There is a very high number of bilateral APA requests pending and the number of APA applications is still increasing. German Tax Administration have started to double their capacities (to approx. 40) but it still takes approx. 3 years to finally conclude a bilateral APA (pre filing to implementation)
Greece Further to a recent amendment in Greek legislation the deadline for the issuance of a decision forAPAs is extended to18 months (instead of 120 days) from the time ofsubmission of the application for the issuance of anAPA. This deadline may be extended to a maximum of36 months by virtue of a Decision of the SecretaryGeneral of Public Revenue. The above deadline does not apply to bilateral APAs.
Hungary Typically it takes about nine to twelve month to obtain a unilateral APA. There are no concluded bilateral APA agreements yet, therefore, no reliable information is available concerning the duration of the process; however, based on the complex nature of bilateral APAs the process probably takes longer compared to unilateral APAs (rough estimation probably one to one and a half year).
Ireland 1.5 years
Italy Unilateral: 18-24 months; Bi- and multilateral: longer than 24 months
Luxembourg For a unilateral APA, it takes at least one month because the APA has to be reviewed by the Luxembourg ruling commission. For a bilateral APA, it depends on the complexity of the case and the other country.
Netherlands 6-12 weeks for a unilateral APA depending on the complexity of the case. Bilateral APA's at least one and a half years, but normally between 2-5 years depending both on the complexity of the case and the other country.
Poland Depending on a complexity of the transaction the unilateral APA may be achieved within 12 months (the regulations indicate it should be achieved within 6 months but this is not realistic). For the bilateral APA it would be twice longer. As regards renewal of the APA decision, it can be achieved within 6 months.
UK The last HMRC statistics (2013-14) put an average APA at 28 months, but did not differentiate between unilateral and multilateral. In practice, the range of durations can be quite wide.
4. Legal changes in the APA procedure due to State Aid investigations (13)
Austria The visible change is that in the text of unilateral rulings with member states, the Austrian tax authorities announce that the ruling will be exchanged.
Belgium No. Note however that Belgium spontaneously exchanged APAs already in 2015.
Denmark No.
France No such announcement.
Germany No.
Greece No.
Hungary There were no recent changes or announcements of future changes regarding the APA procedure.
Ireland No.
Italy No.
Luxembourg As from January 2015, the APAs are reviewed by the Luxembourg ruling commission.
Netherlands No.
Poland No.
UK No. However updated guidance for taxpayers is expected early next year, and limited HMRC resource is making it harder to get accepted into the APA programme.
5. Practical implications on the APA procedure due to State Aid investigations (13)
Austria It has become more difficult for certain fact patterns to obtain an APA at all. The Austrian tax authorities seem to be more even concerned about substance issues and how such ruling could affect other member states.
Belgium No.
Denmark No. Based on a conversation with the Competent Authority it was confirmed that no special measures or obstacles are expected, i.e. there are no increased difficulties in negotiating the APAs. However, the Tax Authority makes sure that the taxpayer is aware of the transparency requirements and these will be followed by the book.
France Yes, there are time delays. Most of the delays are caused by the lack of human resources within the Tax Administration compared to the number of requests. Moreover, the tax authorities request more information. Lastly, after the Lux leaks scandal, they now monitor APA negotiations very carefully which can cause an additional delay. We do not think that delays are related to state aid cases in France.
Germany Yes, there are time delays. Most of the delays are caused by capacity issues but the Head of the German Tax Administration also informed us that he had to report to the German Ministry of Finance about all APA. Thus, they now monitor APA negotiations also in this regard which can cause an additional delay. As Germany only agrees on bilateral APAs, it is very unlikely that the above relates to state aid cases in Germany.
Greece N/A and in any case not related to state aid cases.
Hungary Yes, it can be stated that clients are facing difficulties in the APA negotiations with the Hungarian tax authority, e.g. more requested information, time delays. Lately, the tax authority considers advanced price agreement requests more carefully. There are no announcements regarding the future changes; however, we believe, that these difficulties could be partly attributed to the state aid cases. We have no information about the intentions of the tax authority or ministry of finance regarding the European Commission state aid cases.
Ireland Yes - but we believe these are attributable to tax authority personnel changes as opposed to the state aid cases.
Italy Recently the time to conclude the APA has been significantly longer, due to a reorganization of the APA Office. We do not think this is linked to the state aid cases
Luxembourg It is more difficult (the administration asks more questions) and it takes more time. The ruling commission takes into account the reputational risk of Luxembourg.
Netherlands Not really time delays, but more information requested, not only due to the state aid risk but also due to BEPS in general. Last but not least, in case of an all new APAs, the taxpayer has to complete the exchange of ruling information spreadsheet for exchange within the EU and with other OECD countries. The latter makes some companies reconsider whether or not to pursue a ruling/APA, other companies feel an increased need for certainty and hence for more APAs and then in particular bilateral APAs.
Poland The time delays on the tax authority’s side, more information requested, etc. have always been a case when negotiating APA with Polish tax authorities. However it is not caused by the consequences of the state aid cases. Potential impact of the state aid cases may be expected in the future. The tax authorities may want to take even broader picture on the transaction and its consequences (not only form the Polish perspective).
UK Yes - but not specifically because of state aid. HMRC's major problem is resource constraints. Although there may be an indirect effect of state aid in the increased level of governance and depth of analysis we are seeing in APAs.

This article represents the views of the authors only and does not necessarily represent the views or professional advice of Meijburg & Co. The information contained in this article is of a general nature and based on information that is subject to change. Whether the information contained in this article can be applied to specific situations should be determined in consultation with a company's tax adviser. A list of sources and suggested reading is available at http://src.bna.com/oxB.

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