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APA Agreements implemented in the amended Tax Procedure Act


Last week, the Slovenian National Assembly adopted amendments to the Tax Procedure, which are generally aimed to simplify procedures for taxpayers and enable the tax authority to collect taxes and other public levies in a more efficient manner. More important, the amended Act is introducing the Advance Pricing Agreement (APA).

APA is, as defined by the Tax Procedure Act, an agreement concluded prior to commencing with transactions between related parties and specifies the appropriate criteria (e.g. transfer pricing method, comparables and eventual adjustments) for the determination of transfer prices during a specific the period.

Based on the wording of the amendments, the taxpayer will be able to request the tax authority to issue either a unilateral, bilateral or multilateral agreement. While the unilateral agreement is concluded between the taxpayer and the Slovenian tax authorities, the bi- or multilateral agreement may be concluded between the tax authorities of different states in line with the mutual agreement procedure as provided by Article 25 of the OECD Model Tax Convention. Multilateral agreements will be subsequently implemented through the unilateral APA.

Based on the provisions adopted, both tax residents and tax non-residents with permanent establishment in Slovenia will be able to apply for conclusion of APA, pending certain conditions, such as active involvement in the procedure and provision of all the necessary information and documentation.

The tax authority is not obligated to conclude an agreement if it establishes that the taxpayer is only testing the tax authority's response and if it deems the transaction would not actually be carried out. The agreement is not concluded if the taxpayer does not agree with the tax authorities on the content and criteria of the agreement (in particular regarding methodology) or when the taxpayer does not show adequate duration and certainty of the transaction. The provisions further specify the minimum content of the agreement (the methodology, critical assumptions, time period and other elements affecting the determination of transfer pricing and the method of implementing the agreement).

For instances when the conditions of the transaction subsequently change, the APA should specify the maximum level of acceptable transfer pricing adjustments. If the changes in conditions exceed the thresholds set so that the arm's length principles would no longer be adhered, APA is terminated and a new agreement is to be concluded.

The APA is terminated with time lapse or by actions/omissions of the taxpayer (breach of reporting obligations, failure to implement). Additionally, the new provisions determine that the agreement is null and void if based on false, inaccurate or incomplete information from the taxpayer.

Up to this point, the provisions in relation to APA sound great however they still might suffer the same faith as did the binding ruling – as it is the taxpayer that bears the costs of concluding the APA, the question is will the price of certainty be too high? Especially bearing in mind that the conclusion of APA does not restrict the right of the tax authorities to audit the subject transactions.