Advance Pricing Arrangements (APA)

Below follows a description of Advance Pricing Arrangements (APA) and how they work, as well as relevant guidance when considering whether to apply for an APA. We will be focusing on bilateral APAs but the information given generally applies to multilateral APAs as well.

Advance Pricing Arrangements

The concept of APAs

An Advance Pricing Arrangement is a written agreement, established upon company application, committing the tax authorities to accept a transfer price determined in accordance with the agreement for a specified future period.

The agreement may cover one or more transactions between related companies in different countries or the allocation of profit to a company’s permanent establishment. The agreement establishes the principles for pricing, such as pricing method and comparables, as well as terms and conditions that must be adhered to for the APA to be binding.

Bilateral, multilateral, and unilateral APAs

An APA may be bilateral, multilateral, or unilateral.

An APA agreement between two countries is referred to as a Bilateral Advance Pricing Arrangement. If the agreement involves multiple countries, either in the form of coordinated bilateral agreements or a single agreement covering all the countries, it is referred to as a Multilateral Advance Pricing Arrangement.

An APA between a company and a single country is referred to as a Unilateral Advance Pricing Arrangement. Norway does not offer unilateral APAs. However, the scheme with advance binding rulings for intra-group sale of natural gas shares several similarities with a unilateral APA.

Reasons to request an APA

By entering a bilateral or multilateral APA, a company can rest assured that the tax authorities of the countries involved will accept the transfer price for the period covered by the APA, provided it is set in accordance with the agreement and the terms of the agreement are complied with. As such, APAs contribute to tax predictability and to the avoidance of transfer pricing disputes and double taxation.

The APA process allows the authorities of the involved countries to discuss complex transfer pricing issues before the transaction in question has taken place. Reaching an agreement on an arm's length pricing method for future fiscal years is often less challenging than resolving a dispute that has already arisen. When the analyses are made in real time or prior to the transaction taking place, rather than retrospectively, obtaining relevant and reliable information is also simpler. The discussions between the countries are based on the company’s description and analysis of the transaction and the pricing method outlined in the application.

The most used form of APA is the bilateral APA. A multilateral APA requires more coordination between the countries and usually takes longer to finalise than a bilateral agreement. In return, it ensures predictability in multiple countries.

The APA programme is widely used internationally and is a valuable tool to ensure predictability in the taxation of international transactions.

Legal basis

For a bilateral APA to be concluded, Norway must have a tax treaty with the relevant country. The tax treaty must contain an article based on Article 25 of the OECD Model Tax Convention (Mutual Agreement Procedure – MAP).

For a multilateral APA to be concluded, Norway must have a tax treaty with all the relevant countries. In addition, the involved countries must have concluded tax treaties among themselves, all of which must include an article based on Article 25 of the OECD Model Tax Convention.

Whether an APA should be concluded is for the countries involved to decide, the tax treaties do not give the company the right to claim an APA.

An overview of countries offering APAs is available on the OECD website Mutual Agreement Procedure Profiles (oecd.org).

Competent authority

The term competent authority refers to the persons who, according to the tax treaty, are authorised to enter into bilateral or multilateral APAs. The Norwegian competent authority is the MAP/APA Section in the Norwegian Tax Administration. Any reference to "we" or "us" refers to the Norwegian competent authority.

Confidentiality

Information provided by the company in connection with the APA process is covered by the general rules on confidentiality in the Tax Administration Act. Any exchange of information and all discussions of the matter between the competent authorities is regulated by the tax treaty's rules on exchange of information.

Companies that may apply

An APA may be requested by any:

Company resident in Norway engaged in controlled transactions with a related company abroad.
Company resident in Norway engaged in dealings with its permanent establishment abroad.
Non-resident company engaged in dealings with its permanent establishment in Norway.

For ease of presentation, the term "company" is used to refer to taxpayers covered by an APA. However, other independent taxable entities may also apply for an APA. Applications concerning partnerships must be submitted by or on behalf of participants.

Transactions that may be covered

An APA may cover transactions between related companies in different countries or attribution of profit to a business’ permanent establishment in another country. Within this framework, there is considerable flexibility. An APA may relate to all the transfer pricing issues of the company or be limited to one or more specific transactions. It may cover transactions between companies in two countries or more. Furthermore, it can cover both existing contractual relationships and transactions as well as planned but not yet implemented contractual relationships and transactions, such as business restructurings. However, purely hypothetical transactions cannot be covered.

Norway does not have a minimum requirement regarding the monetary size of the transaction.

Determination of permanent establishment

You may not use the APA programme solely to determine the existence or non-existence of a permanent establishment.

The term of the APA agreement

An APA typically applies for a period of 5 years, but both longer and shorter terms may be agreed upon.

Application of APA on previous fiscal years (roll back)

An APA may also cover previous fiscal years (roll back). This may be relevant if the facts and circumstances are substantially the same for previous fiscal years as for future fiscal years. A roll back requires the acceptance of both countries. If you request a roll back, you must state this in the application. Generally, we do not allow a roll back period going further back than the three previous fiscal years. We may in some cases require the inclusion of previous fiscal years on the grounds of efficient tax administration.

Renewal

You may apply for a renewal of an APA. Generally, the APA process is simpler when it comes to renewals and may often be carried out swiftly. You should submit the renewal application well in advance of the expiration of the APA period. A renewal of the APA requires acceptance from the competent authorities in both countries.

An audit has been notified or initiated

If an APA application concerns matters that are covered by or may be affected by a notified or initiated audit for previous years, we will not start an APA process until the tax office has completed the audit. In special cases, and where required to ensure an efficient tax administration, we may, in consultation with the tax office, nevertheless start the APA process before the audit has been completed.

Audit during the APA period

The tax office may audit the company’s tax assessment. The tax office may verify that the terms and conditions set in the APA are met and that the company has provided correct and complete information during the APA process and beyond.

The APA-process

How it works

You signal your interest in applying for an APA by contacting us.
We hold a pre-filing meeting where you present your case.
You submit an APA application to both countries.
The competent authorities of both countries review the application and request additional information if necessary.
The application is admitted into the APA programme or rejected.
We exchange views and discuss the transfer pricing method and terms with the competent authority of the other country.
We agree on an APA with the competent authority of the other country.
We present the APA to you, and you decide whether to accept it or not.
If you accept the APA, the APA will be effective in both Norway and the other country.
If you decide not to accept the APA, the APA will not take effect in either country, and you must withdraw the application.

When it comes to the processing time for APAs there are no internationally binding time limits. The time taken to conclude an APA will vary depending on the complexity and economic scope of the case, how many and which countries are involved, and the company’s collaboration. It is an international ambition that bilateral APAs should be concluded within 24-30 months from the receipt of a complete application in both countries. When it comes to renewal of APAs, the procedures are typically simpler and substantially less time consuming. We will keep you informed of the status of the case during the process.

Initial contact

We encourage you to reach out to both us and the other country's competent authority when considering applying for an APA and before submitting an application.

Our email address is: [email protected]

Pre-filing meeting

In most cases, it will be useful to arrange an informal meeting before you submit an APA application ("pre-filing meeting"). We may set as a condition for reviewing an APA application that such a meeting has been held, so you are encouraged to clarify whether this will be required. A pre-filing meeting will generally cover topics such as:

Whether the case is suitable for an APA
Which transactions to be covered.
The term of the APA, including the use of roll back.
Case-specific issues, and the choice of transfer pricing method.
What information to include in the application.
The process and expected timeline.

We do not hold pre-filing meetings where the company’s identity is unknown.

You should provide us with sufficient information to enable us to indicate whether the case is suitable for an APA.

Review of and response on the application

Upon receival of an APA application, we will consider whether it should be admitted into the APA programme. This assessment is made on a case-by-case basis, and you cannot demand that we initiate APA negotiations with the other country.

When making the assessment, we consider the risk of double taxation if an APA is not concluded, and whether there is real doubt as to how the arm’s length standard should be applied. We also consider whether the case is suitable for an APA process and whether initiating an APA process constitutes a proper use of public resources. The monetary value and complexity of the transaction may be taken into account but we do not have any minimum requirement regarding either. We will reject applications considered overtly tax motivated.

Applications from companies liable to the special tax under the Petroleum Tax Act will be assessed in consultation with the Oil Taxation Office.

We will inform you of whether or not your application has been admitted into the APA programme. Both countries must agree on initiating an APA process. Generally, response will be given within 30 days from the date both countries received a complete application. If the assessment takes longer, we will inform you and give an indication of when a response can be expected.

The process between competent authorites

Each country’s competent authority prepares a position paper stating its view on the case. The position papers are exchanged before the discussions between the competent authorities take place.

The company is not a party to these discussions. However, if deemed necessary, you may be invited to clarify the facts of the case.

Agreement and company acceptance

Once we have reached agreement with the competent authority of the other country, we will send you the agreement and provide a deadline for acceptance. The deadline is normally set to four weeks but can be extended upon your request. Until you have accepted the APA, you may terminate the process by withdrawing the application.

If you decide not to accept the agreement, it will not come into effect in either country, and the company's tax assessment for the APA period will be subject to ordinary treatment.

Implementation of the agreement

If you accept the APA, we will inform the tax office of the content of the agreement.

If the Norwegian tax assessment needs to be adjusted for one or more fiscal years to conform to the APA, we will inform you and the tax office of the adjustments to be made.

In Norway, the APA agreement will take legal effect upon the company's acceptance of the APA. In some countries, a separate agreement is required between the tax authorities and the company of that country for the APA to come into effect.

Tax returns submitted pending an APA

We expect tax returns submitted while pending an APA to conform to the pricing method described in the APA application for the proposed APA period.

Additional information

You may at any stage be asked for additional information. You are expected to provide the requested information within a reasonable time and to provide the same information to the involved competent authorities. In the opposite case, we may choose to terminate the APA process.

Obligation to provide information

In the application, you must provide all information relevant to the case and sufficient information for us to process the application properly. What constitutes sufficient information will vary depending on the nature of the business and the complexity and scope of the transactions.

Requirements for the APA application

Overall, the application must provide us the information necessary to assess whether the proposed transfer pricing method will lead to a result in accordance with the arm’s length principle and the relevant tax treaty.

The APA application must contain the following information:

Name, organisation number or similar identification, and address of the Norwegian and/or foreign company.
The company’s contact information, as well as any power of attorney to act on behalf of the company.
The fiscal years to be covered by the APA, including any previous fiscal years (roll back).
The background for the application.
The controlled transactions covered by the application. If the application does not include all controlled transactions between the parties, you should explain the reason for this.
A description of the company’s business and the market in which the company operates.
An overview of the group structure and a description of the legal and operational business structure between the transacting companies.
A detailed functional and comparability analysis, including a description and analysis of the functions performed, assets owned, and risks assumed by each of the parties to the transaction.
An analysis of any internal comparables.
The proposed transfer prising method and comparables, followed by a justified explanation of the choices made. An explanation of any adjustments made to obtain comparability.
Whether the proposal entails a change in the company’s transfer pricing policy.
Budgeted and, if applicable, actual figures regarding revenue, costs, and profit during the APA period for the transactions covered using the proposed transfer pricing method.
Show how the proposed transfer pricing method will be implemented, with references being made to the relevant income or cost items in the company's financial statements.
Copies of any valuation reports, benchmark analyses, appraisals, TP documentation, etc. of significance to the case.
Copies of internal and external agreements, etc., of significance to the case.
Whether there is an ongoing tax audit of the company in Norway or abroad of significance to the case.
Whether there are existing or expired APAs (unilateral, bilateral, or multilateral) affecting the relevant transaction or similar transactions.
Whether the Norwegian or foreign company have initiated a self-adjustment of their tax return regarding matters covered by the APA application, either in Norway or abroad.
Whether the Norwegian or foreign company have initiated an amendment in credit deductions for taxes paid abroad, income deductions for foreign paid tax, or a corresponding downward adjustment of income comprised by the APA application, either in Norway or abroad.
Critical assumptions in case the company has any suggestions regarding such. Critical assumptions refer to assumptions that must be satisfied during the APA period for the APA to be binding. See Critical assumptions regularly found in APA agreements for examples.

Other countries may have other requirements regarding the content of the APA application. You must comply with the requirements in all relevant countries.

Submitting an application

The APA application is to be submitted to the competent authority in the country where the company is resident as well as to the competent authority in the other country that becomes a party to the agreement.

The companies should jointly prepare the application and submit it simultaneously to all relevant countries. The applications submitted to the different countries should contain the same information.

Reach out to us on email [email protected] to agree on a secure way of sending the application electronically.

Alternatively, you may send the application electronically via Altinn (requires a Norwegian organisation number and login using ID-porten), or by post to:

The Norwegian Tax Administration
Large Business, Section MAP/APA
P.O. Box 9200 Grønland
NO-0134 Oslo, NORWAY

Regardless of the method used, be sure to mark the application with the reference "APA application".

The contact information for the competent authorities of other countries is to be found on the OECD’s website Mutual Agreement Procedure Profiles (oecd.org).

Language

We accept applications and documents in Norwegian, English, Danish, and Swedish.

Submit the application in advance of the APA period

You are encouraged to submit the application well in advance of the commencement of the APA period.

For us to include a fiscal year in the APA period without roll back, a complete application must have been received by the end of the first fiscal year in the APA period. A complete application is one fulfilling the requirements listed in Requirements for the APA application.

Other countries may have other rules concerning at what time an application must be received.

Fee

Norway does not charge a fee for processing APA applications, but some countries do.

APA agreement and compliance

The content of an APA may vary depending on the type of case and the circumstances. However, in most cases, the following elements are included as part of the agreement:

The fiscal years constituting the APA period, including any roll back years.
The transactions covered by the APA.
The transfer pricing method and the comparables.
Requirement for an annual compliance report from the company.
The critical assumptions that must be met in the APA period for the agreement to be binding.
The legal consequences of a breach of the critical assumptions.

The concept of critical assumptions

An APA establishes a pricing methodology, etc. for a future period based on the factual situation at the time the APA is entered into. In APA agreements, it is commonly specified what factual circumstances must be met in order for the agreement to be binding on the tax authorities during the APA period. Such assumptions are called critical assumptions. Critical assumptions may be directed at the business itself or external conditions over which the company has no control.

Critical assumptions regularly found in APA agreements

In most APAs, it will be a requirement that business activities, functions performed, assets owned, and risks assumed by the parties in relation to the transaction will remain materially the same during the APA period. In addition, there is usually a requirement for consistent use of accounting, bookkeeping, and allocation principles during the APA period, and that no changes of significant importance for the transaction occur in national or international tax rules.

It may also be relevant to set other critical assumptions specifically tailored to the companies and transactions.

Consequences of breaches of critical assumptions

APA agreements typically contain provisions on the consequences of breaches of critical assumptions. Such breaches will not necessarily result in the termination of the APA agreement. An alternative may be that the agreement is adjusted and adapted to the new circumstances.

In some APA agreements, there are provisions stating that the competent authorities shall endeavour to agree on a revised agreement considering the new circumstances. However, you are not entitled to the APA agreement being continued unchanged or in a revised form.

The company’s obligation to provide information

You are obliged to disclose any circumstance entailing the non-fulfilment of a critical assumption in the agreement or any other non-compliance regarding the agreement. Such information must at the latest be provided in the yearly compliance report.

Annual compliance report

APA agreements contain a condition requiring you to annually submit a compliance report. Through this reporting, you must demonstrate that you have submitted a tax return in line with the agreement and adhered to the conditions and assumptions outlined in the agreement. The specific requirements for compliance reporting may vary depending on the type and scope of the case. Where no other specification is given in the APA agreement, you must, at a minimum, document that the pricing method stated in the APA has been adhered to and that the critical assumptions have been met.

In Norway, the compliance report should be submitted as an attachment to the tax return. In some cases, we may ask the company to provide us with a copy.

If you provide incorrect or incomplete information either in the APA application or during the reporting period, the agreement may be terminated, possibly retroactively.

If the APA agreement is terminated, it may entail amendment of tax assessments for the years in question. A tax reassessment raised because of failure to provide complete and correct information may result in a sanction in the form of additional tax pursuant to the provisions of the Tax Administration Act.

Advance Pricing Arrangements (APA)