4. MAP and domestic law
4.4. Unilateral APA
Unilateral Advance Pricing Arrangements (APAs) are one-sided tools addressing issues with bilateral implications. Bilateral APAs offer greater tax certainty and address the full scope of a transaction and are therefore favoured over unilateral APAs. Although unilateral APAs may be useful in certain circumstances, such as covering issues or transactions where no applicable tax convention exists, they may prove to have limited utility where both tax administrations actively review the type of transactions being covered.
In OECD consultations, business has advised that on rare occasions previously concluded unilateral APAs may preclude a taxpayer in some jurisdictions from accessing MAP if they later find themselves subject to double taxation. Such preclusions would diminish the effective operations of MAP and should be avoided.
Best Practice Nº19: Avoid blocking MAP access via audit settlements or unilateral APAs
It is a best practice for both taxpayers and tax administrations to avoid the inclusion of a waiver of access to MAP in audit settlements. Since MAP involves bilateral issues it is inappropriate to have two parties (the taxpayer and one tax administration) not include a third involved party (the other tax administration) in the final resolution of a file.
First of all, taxpayers may not realize the potential implications of double taxation and the fact that an adjustment by the other tax administration may complicate the issue. Secondly, tax administrations should consider the issues of cooperation and reciprocity as well as the fact that one-sided settlements will not serve tax administrations well in the long run.
As for unilateral APAs, if a foreign adjustment is raised against a transaction or issue covered by a unilateral APA, the unilateral APA should be treated as the taxpayer’s filing and therefore eligible for MAP and adjustable, as opposed to an irreversible settlement.