Prevention and cure: the OECD’s APA and MAP statistics

On 15 November 2024, the OECD held its sixth annual Tax Certainty Day, which also saw the publication of Mutual Agreement Procedure (MAP) and Advance Pricing Agreement (APA) statistics for 2023. These publications always provide important insights for multinational groups considering approaches to international tax certainty and relief from double taxation, and this year’s figures were no exception. For the first time, the OECD’s published figures include APA data as well as MAP figures, an important enhancement giving insight into the APA avenue for proactive certainty, alongside MAP’s post-adjustment dispute resolution. Our experience, together with national-level data, shows that APAs are consistently attractive to multinationals seeking to prevent transfer pricing disputes in complex and high value areas. The OECD’s publication of figures here is welcome.

But MAP is no dispirited afterthought either: the number of closed transfer pricing MAP cases hit a record 1,185 in 2023. This is great to see and reflects the addition of trained resources by national Competent Authorities (CAs) to handle the substantial caseload under conditions of sustained high demand. The number of new transfer pricing MAP cases was the lowest since 2018 but there were still nearly 1,000 new cases opened in 2023. The record number of closed cases, combined with fewer new cases, meant the total inventory fell overall, and this was consistent across almost all the main MAP-participating countries with Germany the most notable exception.

This is a positive reflection of tax authorities’ ongoing commitment to resolve international disputes in a mutually agreeable way. Average time to conclude cases was up (from under 29 months to 32), but clearing old cases (good progress has been made here) will do this and is a strong outcome notwithstanding – bilateral post-2015 cases have taken about 29.5 months to resolve, against the OECD’s target of 24 months.

And not just closing cases in any old way, but successfully: Transfer pricing (TP) MAP outcomes continue to show a positive trend. 71 percent of cases closed in 2023 were fully resolved via MAP, which was a significant increase on the 2022 and 2021 comparators. Nonetheless, more can be done. Double taxation remains a real risk for multinational entities (MNEs): whilst only relatively small, there were still 5 percent of cases closed with no agreement / an agreement to disagree plus a further 4 percent that only achieved a partial solution. Of more concern, there was a high number of withdrawals (11 percent), especially in some jurisdictions (e.g. Germany) and there do seem to be questions as to the reason(s) for this and what the alternative resolution is, if any.

As far as the new APA statistics are concerned, the information is limited in extent so far, but seems encouraging. 860 APAs were granted in the year, with an average time to conclude cases of 36.8 months. This compares very favourably to the timetable that businesses with transfer pricing enquiries could expect for the enquiry itself (nearly 39 months according to the latest UK figures), plus whatever time is taken for a subsequent MAP (an additional 29.5 months on average based on these OECD statistics). With the advance certainty provided, APAs continue to be attractive in the right circumstances.

Whilst the OECD APA statistics are new, most of the major jurisdictions have been reporting their own APA statistics for some years. Still, this new release is important, not least because the OECD figures are compiled based on a consistent reporting framework. From a UK perspective, demand for APAs remains strong with 45 new cases despite the time taken still remaining above what HMRC hope for with an average time taken to conclude APAs of 45.5 months (their target is 30 months). This shows that APAs remain attractive. The next challenge will be to clear down the closing APA inventory of 159 cases. Overall our experience is that HMRC are committed to timely agreements and when paired with like-minded CAs (US and Japan in particular), we see much quicker agreements reached than the average would suggest.

The UK’s year end MAP inventory mirrored the global trend of a welcome reduction, going from 297 cases at the end of 2022 to 272 at the end of 2023. Likewise the UK’s cases closed figures improved from 125 to 134. Finally, the UK had the fourth highest jurisdictional result on total case closing ratio (cases closed vs a measure of average total caseload) and their co-operation with Italy on transfer pricing cases received an honourable mention by the OECD. These results reflect efforts HMRC have made to close cases, as the demand remains more or less the same (302 cases started v 303), consistent with our positive experience of HMRC’s constructive approach to MAP and willingness to consider proposed solutions on their merits.

These figures show that demand for certainty over transfer pricing matters remains strong. With the ongoing international tax developments under the OECD’s BEPS 2.0 project (such as ‘Amount B’, the simplified return for baseline marketing and distribution activities), this can only be expected to increase. Although billed as simplifications, there remains room for jurisdictions to adopt different approaches to Amount B and other OECD initiatives. Efficient and reliable dispute prevention and resolution mechanisms will be very important in ensuring the OECD’s policy objectives are not smothered by administrative difficulty arising from divergence of tax authority views. On the domestic front also, many tax authorities including HMRC are also devoting more efforts to transfer pricing compliance. With the many uncertainties over arm’s length pricing in a given situation it is only to be expected that different authorities may come to different conclusions in individual cases. Tax authority engagement will be crucial here: the additional CA resourcing in many jurisdictions is very welcome and has arguably been the enabler for much of the progress seen so far. While prevention may be better than cure, either is preferable to the blight of double taxation.