The Inland Revenue Department of Sri Lanka has announced the release of a new guide on Advanced Pricing Agreements (APAs) on 6 January 2025.

This guide provides an overview of the APA process in Sri Lanka, including detailed steps, documentation requirements, critical assumptions for the future events and practical insights to facilitate the successful negotiation and implementation of an APA. The APA process is voluntary and it will be a supplement for resolving transfer-pricing disputes.

The agreed APA shall remain binding on all parties involved and apply to the covered transactions for the entire duration of the agreement

To qualify for an APA, taxpayers must:

(a) Engage in cross-border transactions.

(b) Seek to ensure compliance with transfer pricing regulations.

(c) Be prepared to provide detailed information and engage in comprehensive negotiations.

The APA process encompasses all stages, from the taxpayer expressing interest in obtaining an APA to the successful completion of the APA term. The IRD’s APA process includes the following five key stages:

(a) Pre-filing consultation;

(b) Formal APA application; (c) Evaluation and analysis of the application;

(d) Negotiation and agreement of the APA; and

(e) Submission of the Annual Compliance Report (“ACR”).

The fee for a new unilateral APA is LKR 1,000,000 and must be paid by the taxpayer to the IRD at the time of submitting the formal application. For renewals, the fee is LKR 750,000 and is payable upon submission of the renewal application. These fees cover administrative costs and the review of the taxpayer’s application. Both fees are nonrefundable.

APA is a formal agreement that determines, in advance, the arm’s length price or an appropriate set of criteria (e.g., method, comparable and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the arm’s length price for international transactions over a fixed period of time.