On 8 November 2016, HM Revenue & Customs (HMRC) updated Statement of Practice 2 (2010) which sets out the process for obtaining advance pricing agreements (APAs).
The updated statement of practice:
- Updates previous guidance on the implications of possible permanent establishments (PEs) on the APA discussions;
- Clarifies HMRC’s position on the interaction between APAs and the diverted profits tax (DPT) and confirms, with respect to the DPT, that the APA programme cannot be used to agree to the taxpayer’s DPT position, but that an early discussion of DPT will be required;
- Represents a tightening of the admission criteria for taxpayers wishing to access the APA programme;
- Indicates HMRC will only accept APA applications when the transfer pricing issues are “complex,” when there is a real risk of double taxation in the absence of an APA, and when HMRC considers it a good use of taxpayer and governmental resources.
HMRC also expressed a strong preference for bilateral APAs, with unilateral APAs generally only being accepted when the transaction is with a non-treaty partner or with a country with no APA programme, or in situations when the UK transacts with multiple countries and the transactions with each country may be small, but the sum of those transactions for the UK is large.
