The Bilateral Advance Pricing Agreement (BAPA) serves as a crucial instrument in the UAE's transfer pricing framework, introduced under the Corporate Tax Law and supporting regulations. This document is essential for multinational enterprises seeking certainty in their transfer pricing arrangements, particularly following the UAE's implementation of comprehensive transfer pricing rules in 2023. The agreement is used when a company conducts significant cross-border transactions with related parties and wishes to prevent potential double taxation issues. It provides advance certainty on the transfer pricing methodology, helping companies comply with both UAE and foreign tax jurisdiction requirements. The document typically covers a 3-5 year period and includes detailed technical analysis, critical assumptions, and annual compliance obligations, aligned with OECD guidelines and UAE tax regulations.
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1. Parties: Identification of the taxpayer and the tax authorities of both jurisdictions
2. Background: Context of the agreement, including brief description of the business operations and reason for seeking the APA
3. Definitions: Key terms used in the agreement, including technical transfer pricing terminology
4. Scope of Agreement: Covered transactions, time period, and entities involved
5. Transfer Pricing Methodology: Agreed method(s) for determining arm's length prices/margins
6. Critical Assumptions: Key business and economic conditions underlying the agreement
7. Annual Compliance Requirements: Documentation and reporting obligations of the taxpayer
8. Term and Renewal: Duration of the agreement and process for renewal
9. Revision and Cancellation: Circumstances and procedures for modifying or terminating the agreement
10. Confidentiality: Provisions regarding the handling of sensitive information
11. Governing Law and Jurisdiction: Applicable laws and jurisdiction for dispute resolution
12. Execution: Signature blocks for all parties
1. Rollback Provisions: Optional section for applying the agreed methodology to previous tax years
2. Compensating Adjustments: Procedures for making adjustments if results fall outside agreed ranges
3. MAP Integration: Integration with Mutual Agreement Procedure if applicable
4. Force Majeure: Provisions for extraordinary events affecting the agreement's implementation
5. Language: Required when agreement is executed in multiple languages
6. Additional Tax Authority Requirements: Specific requirements unique to either tax authority
1. Schedule A - Covered Transactions: Detailed description of intercompany transactions covered by the APA
2. Schedule B - Transfer Pricing Methodology: Detailed technical explanation of the agreed pricing method(s) and calculations
3. Schedule C - Critical Assumptions: Comprehensive list and explanation of critical assumptions
4. Schedule D - Annual Reporting Template: Format and content requirements for annual compliance reports
5. Appendix 1 - Financial Data: Historical financial data and projections supporting the methodology
6. Appendix 2 - Functional Analysis: Detailed analysis of functions, assets, and risks of involved entities
7. Appendix 3 - Comparability Analysis: Details of comparable transactions or companies used in the analysis
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