Part 5: Advance pricing agreements
Overview
428.This Part provides the rules on APAs. These are written agreements between an enterprise and the Commissioners for HMRC which determine a method for resolving pricing issues in advance of a return being made. When the terms of the agreement are complied with they provide assurance that the treatment of those pricing issues will be accepted by both HMRC and the enterprise for the period covered by the agreement.
429.The APA legislation was put in place to enable HMRC to enter into APAs independently of pricing agreements under DTAs.
430.The Part sets out the matters which can be covered by an APA, what a taxpayer must do to obtain an agreement and how an agreement is applied.
Section 218: Meaning of “advance pricing agreement”
431.This section gives the meaning of an APA and the matters it can cover. It is based on section 85(1) and (2) of FA 1999 and section 153(2) of FA 2003.
432.Subsection (2)(a) applies only to persons other than companies. It is based on section 85(2)(a) of FA 1999, but without the meaning of “permanent establishment” applied by section 153(2)(c) of FA 2003 in cases where the taxpayer is a company. This subsection allows agreement on income chargeable as arising in the United Kingdom under the territorial provisions of ITTOIA (see in particular section 6(2) of that Act).
433.Subsection (2)(b) rewrites section 85(2)(a) of FA 1999 with the modification for companies applied by section 153(2)(c) of FA 2003. It allows agreement in the case of income attributed to a permanent establishment in the United Kingdom under Chapter 4 of Part 2 of CTA 2009.
434.Subsection (2)(c) is based on section 85(2)(b) of FA 1999. For the meaning of permanent establishment see Chapter 2 of Part 24 of CTA 2010.
435.Subsection (2)(d) allows agreement on the territorial location of income and subsection (2)(e) covers transfer pricing matters.
436.Subsection (2)(f) deals with the application of transfer pricing provisions to oil-related ring fence trades.
Section 219: Meaning of “associate” in section 218(2)(e)
437.This section brings in the meaning of direct and indirect participation given by Part 4 (transfer pricing) for the purposes of section 218(2)(e) (advance pricing agreement). It is based on section 85(6) of FA 1999.
Section 220: Effect of agreement on party to it
438.This section provides that matters covered by an APA are to be determined under the agreement without reference to the usual means of determining such questions. In the case of transfer pricing matters, although reference to Part 4 may be excluded, an APA cannot exclude reference to other statutory provisions. The section is based on section 85(1), (3), (4) and (8) of FA 1999.
439.The opening words of section 85(3) of FA 1999 make section 85 subject to the following provisions of the section and to section 86. This is regarded, in fact, as referring to the remainder of section 85(3) and to sections 85(4) and 86(2) only and subsection (3) is drafted accordingly.
440.Subsection (5) rewrites, from section 85(4)(b), “a question falling within another paragraph of that subsection”. “That subsection” is section 85(2) which is rewritten in section 218(2). These words are rewritten as “a question that relates to a matter within another paragraph of section 218(2)” since section 85(2) (and section 218) lists “matters” rather than “questions”.
Section 221: Effect of revocation of agreement or breach of its conditions
441.This section states the conditions under which an APA does not have effect. It is based on section 86(2) of FA 1999.
Section 222: Effect of agreement on non-parties
442.This section applies if one of the parties to a transfer pricing transaction has entered into an APA in relation to that transaction. The section provides that the APA also applies in the case of the other party to the transfer pricing transaction for the purpose of determining questions related to the transaction. The section is based on section 87 of FA 1999.
Section 223: Application for agreement
443.This section specifies the requirements that apply as regards an application for an APA made to HMRC by a taxpayer. It is based on section 85(1) and (5) of FA 1999.
Section 224: Provision in agreement about years ended or begun before agreement made
444.This section allows an APA to cover a period before the APA is made and gives effect to provisions of an APA relating to a period ending or beginning before the APA is made. It is based on sections 85(8) and 86(1) and (7) of FA 1999.
Section 225: Modification and revocation of agreement
445.This section allows an APA to provide for HMRC to determine the time from which any modification or revocation of the APA is to take effect in a case where the APA gives HMRC powers to modify or revoke the agreement. It is based on section 86(6) of FA 1999.
Section 226: Annulment of agreement for misrepresentation
446.This section allows an APA to be nullified if the Commissioners for HMRC have been provided by the other party with fraudulent or negligent information. It is based on section 86(5) of FA 1999.
Section 227: Penalty for misrepresentation in connection with agreement
447.This section provides the maximum penalty for fraudulently or negligently providing false or misleading information in connection with the preparation of an APA. It is based on section 86(8) of FA 1999.
Section 228: Party to agreement: duty to provide information
448.This section places a duty on a party to an APA to provide the Commissioners for HMRC with reports and other information. It is based on section 86(4) of FA 1999.
Section 229: Modifications of agreement for double taxation purposes
449.This section provides that mutual agreements under a DTA take precedence over APAs. It is based on section 86(3) and (10) of FA 1999.
450.“Mutual agreement” is undefined in the Taxes Acts but considered to have the same meaning as in section 124 (section 815AA of ICTA) where it refers to agreements between the United Kingdom and an authority in a territory with which the United Kingdom has a DTA. Such agreements are envisaged in Article 25 of the OECD Model Tax Convention.
Section 230: Interpretation of Part: meaning of “Commissioners” and “officer”
451.This section is based on sections 85(1) and (5) and 86(2) to (6) and (8) of FA 1999.
