International - What is an Advance Pricing Agreement?

APAs made for the purposes of Section 85, FA 1999 are written agreements between a business and the Board of Inland Revenue which determine a method for resolving transfer pricing issues in advance of a return being made. When the terms of the agreement are complied with, they provide assurance that the treatment in accordance with the agreement of those transfer pricing issues will be accepted by both the Revenue and the business for the period covered by the agreement.

An APA may remain limited to a binding agreement between a UK business and the Inland Revenue in accordance with Section 85, FA 1999: this is referred to as a "unilateral APA". However, a unilateral APA can provide only a partial resolution of cross-border transfer pricing issues because, although it confirms the tax treatment in the UK, it does not determine how the issues are to be resolved in the other country involved. Consequently, it does not eliminate the risk of double taxation in relation to the transfer pricing issues it addresses. In order to achieve that comprehensively in the case of cross-border transfer pricing issues where a Double Taxation Agreement exists between the UK and the other country containing a Mutual Agreement Procedure article, the Inland Revenue would have to reach agreement also with the tax administration of the other country: this is referred to as a "bilateral APA".