glossary
Definitions
An APA is an agreement that specifies the transfer pricing arrangements that a taxpayer will apply to certain transactions for an agreed future period.
The international consensus for determining transfer prices for direct taxation purposes, as elaborated in Article 9 of the OECD Model Tax Convention: ‘[where] conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly’. (OECD Transfer Pricing Guidelines 2010, p 23.)
A range of arm’s length results, that may arise due to the application of a transfer pricing method using comparable uncontrolled transactions, or the application of more than one transfer pricing method.
An APA involving the Competent Authorities of two tax treaty partner countries.
An analysis undertaken in order to determine whether the controlled transaction(s) are comparable to one or more uncontrolled transactions for the purpose of accurately delineating the transaction(s) and selecting and applying the transfer pricing method.
A transaction between two independent entities that is comparable to the controlled transaction being analysed.
An adjustment by a taxpayer to their tax calculations to report an amount for a controlled transaction that is consistent with the arm’s length principle, though different to the actual amount charged between the parties.
The designated representative of a government for the purposes of application of a tax treaty.
Transactions that fall within the scope of transfer pricing legislation (e.g. transactions between associated parties).
An adjustment to the tax liability of a taxpayer that is made by the tax administration of the second tax jurisdiction that corresponds to a primary adjustment made by the tax administration in the first jurisdiction and ensures consist allocation of profits and no economic double taxation.
Critical assumptions are specific assumptions concerning operational, legal or financial matters relating to a taxpayer, third party, industry or economic conditions, the continued existence of which is necessary for an APA to remain acceptable to all parties. Should a critical assumption be triggered, the APA may need to be revised or cancelled.
An analysis of the functions performed, assets employed and risks borne by the parties to controlled transactions and the uncontrolled transactions for the purposes of performing the comparability analysis.
An APA involving the Competent Authorities of three or more tax treaty partner countries.
An entity that is party of a group of companies with operations in two or more countries.
A specific procedure by which Competent Authorities can resolve issues concerning the application of a tax treaty.
A threshold for the taxable presence of a non-resident taxpayer that is typically defined under domestic tax law and in the permanent establishment article of an applicable tax treaty.
A adjustment made by the tax administration in a first jurisdiction to the taxable profits of an entity as a result of applying the arm’s length principle to one or more controlled transactions.
The expected future profits or losses.
A method or methods that can be applied to establish whether conditions of controlled transactions are consistent with the arm’s length principle.
An APA involving the taxpayer and the tax administration in a single jurisdiction.