Part 1 - AL-Tax

International Taxation Handbook●●(Bundesländer) of the Federal Republic of Germany preventing the currentfederal tax administration, including the Federal Ministry of Finance, tolaunch a fully fledged APA program similar to that in the USA.❍ Tax courts and the judicial role in institutionalizing transfer pricing provisionsmay also impact the evolution of APA programs. However, the analysiscould not identify clear information on this factor. Yet, both in the USAand in Germany, highest court decisions and regional court decisions ontransfer pricing cases have increased the awareness among the parties totreat controversial issues ex-ante through an APA.Institutional frameworks to generate an APA as if an APA program or similarmechanisms are already in place:❍ The legal title of an APA means the tax authority is obliged to accept andprocess an APA request and this may be part of its relative attractiveness.In some countries (for example, the USA), the taxpayer is entitled toclaim an APA, while in other countries the taxpayer may have no suchlegitimate title.❍ The legal nature of an APA is relevant for cross-country comparisons. InAnglo-American countries, an APA is normally a contract, while underRoman-Law principles the taxpayer receives a legal statement from thetax administration. Another important factor is the ‘distorted legal enforceability’power. For example, in Germany, most important tax cases intransfer pricing were finally won by the taxpayer (for example, the seminalFederal Tax Court decision on transfer pricing documentation dated17 October 2001).Economic factors describe the conditions under which an APA is an attractivemechanism to govern the tax base allocation problems behind transferpricing:❍ Without ‘economic demand’ for APAs, such nonadversarial mechanismsmay not be the most attractive method to resolve transfer pricing cases.There are several upfront costs associated with an APA process – comparedwith a large, but unknown, range of ex-post cost possibilities because ofaudit and income adjustments. Economic demand might be measured bythe share of cross-border business within multinational groups – measuredas business between two countries – to total cross-border business betweenthese two countries.❍ The industry the MNC’s transfer pricing case belongs to seems to play arole in relative attractiveness of an APA. As is often the case in high-techbusiness or in the chemical and pharmaceutical industries, related-party138