The latest APA and MAP figures in Europe: what are the implications for multinational group taxpayers?

By Danny Beeton, Arendt & Medernach

Statistics published earlier this week by the European Commission on member state advance pricing agreement (APA) and mutual agreement procedure (MAP) programs suggest that the OECD/G20 base erosion profit shifting (BEPS) project has increased the scope for differences of opinion between tax authorities of different countries.

The data, which covers calendar years 2017 and 2018, also shows that taxpayers have responded to this increased controversy by seeking more certainty through bilateral/multilateral APAs and by invoking the MAP. 

The new EU figures give taxpayers useful information about the popularity and success of APA and MAP programs in the new environment of greater uncertainty about transfer pricing treatment.

It also suggests that both APAs and MAP appear to be working well in Europe and are recommended options.

MAP successes

Across the EU as a whole, 674 MAP cases were completed in 2018 from an opening inventory of 1,936 (i.e. 34.8%).  This compares with 534 cases completed in 2017 from an opening inventory of 1,899 (i.e. 28.1%). 

This improvement in completion rate was despite an increased workload (727 cases initiated in 2018 compared to 547 in 2017, an increase of 32.9%). The average cycle time for cases completed (taking the simple average for all jurisdictions which reported this figure) was 31.2 months in 2018 compared to 27.3 months in 2017.

This longer cycle time in conjunction with the improved completion rate suggests that tax authorities made good progress in 2018 in resolving many difficult, long-standing cases. It seems likely that average cycle times will improve in 2019.

The figures also suggest that the BEPS project is having the expected effect in terms of more transfer pricing controversy, but that EU tax authorities have geared up appropriately. Pursuing the MAP route appears to be a good option for taxpayers.

Increased EU/non-EU APAs

According to the newly released statistics, the total number of APAs in force at the end of 2018 was 726 (intra-EU) and 515 (EU/non-EU). This compared with 902 and 519 respectively in 2017.

Thus, the proportion of EU/non-EU APAs increased from 36.5% to 41.5%.

This suggests a major shift of APAs towards EU/non-EU agreements, which further suggests that taxpayers are responding to the scope for different interpretations of the new transfer pricing concepts in different parts of the world.

This suggests a major shift of APAs towards EU/non-EU agreements, which further suggests that taxpayers are responding to the scope for different interpretations of the new transfer pricing concepts in different parts of the world.

The proportion of APAs in force at year-end which were bilateral/multilateral was 21.8% in 2018, compared to only 15.3% in 2017.

This also indicates that taxpayers are trying to secure more certainty from their APAs in the context of more scope for disagreement between tax authorities.

The average time in months to negotiate APAs (taking the simple average for all jurisdictions which reported this figure) was 32.3 months for APAs between EU jurisdictions in 2018, compared to 32.9 months in 2017 (a reduction of 1.8%). 

Between EU and non-EU jurisdictions, time to negotiate increased slightly from 31.8 months in 2017 to 33.2 months in 2018, presumably because of the significantly increased workload from this type of application and the additional BEPS-related scope for differences of opinion between different tax authorities.

These figures suggest that the APA option is a good one for taxpayers, especially bilateral/multilateral APAs.

–Danny Beeton is of counsel in the tax department of Arendt & Medernach, Luxembourg and London.

Editor’s note: this article was modified on August 5, 2019, with respect to the statistics for in-force intra EU-APAs and EU/non-EU APAs.