FTA directive on APA- UAE (2)

FTA directive on Advance Pricing Agreements

Recently, the Federal Tax Authority (FTA) issued Decision No.4 of 2024, effective from July 01, 2024, which enunciates FTA’s policy on issuing clarifications & directives relating to federal taxes. While policy outlines the general framework for procedures of clarifications & directives, the processes & details shall be specified by FTA.

Article 59 of the Federal Decree law no 47 of 2022 provides that a person may make an application to FTA for entering into an APA with respect to an existing/proposed transaction with related parties. The FTA shall prescribe the form & manner in which application for APA should be made.

The said Decision now clarifies that start date for receiving APA applications, the procedures relating to submission & issuance of agreements will be announced by FTA during the fourth quarter of 2024.

As UAE TP Guidelines largely follows the OECD TP Guidelines, it is expected that UAE APA programme will also be in line with Chapter IV of the OECD TP Guidelines. A general overview of an APA program is as below:-

• ELIGIBILITY CRITERIA- Generally APA program provides an eligibility criteria for both the time limit within which such an application may be made for a financial year as well as defining a minimum threshold of the value of related party transactions undertaken / proposed to be undertaken
• TYPES OF APA- Can be Unilateral, Bilateral or Multilateral
• TIME PERIOD- Generally an APA would cover a specified period ranging from 3 to 5 years & would also provide for a rollback provision for prior years (3-5 years).
• APA PROCESS:- The APA process generally includes the following steps:-
  • Pre-filing consultation
  • APA Application
  • Preliminary processing of application
  • Procedure
  • Negotiation
  • Signing of Agreement
  • Post APA Compliances

Thus FTA’s directive, to be issued in last quarter of 2024, is expected to address not only the above aspects but also cover procedural aspects relating to format of application, filing fees etc.

The APA programme will no doubt serve as a powerful mechanism for dispute resolution fostering an environment of tax certainty & unanimity in the approach relating to related party transactions. However decision to opt for APA lies with the businesses which needs to evaluate considering the nature, criticality & value of the related party transactions vis-à-vis the time & cost that would be involved in that process. Once decision to enter into an APA is made, it is critical for businesses to:-

• Maintain robust TP Policy aligned with commercial substance
• Maintain intercompany agreements reflecting the TP policy
• Documentation to support that actual business conduct adheres to TP Policy
• Deciding on information, documents & agreements to be shared with APA authorities.