1 What is a CAA and when do you need one?

A CAA is a mechanism to eliminate or reduce double taxation that arises from inconsistent transfer pricing adjustments made by different tax authorities. For example, if Country A reduces the taxable income of a subsidiary of a multinational enterprise (MNE) by increasing its transfer price, and Country B does not accept this adjustment and imposes additional tax on the parent company of the MNE, the MNE may face double taxation on the same income. A CAA can resolve this issue by aligning the transfer pricing outcomes of both countries and providing relief to the taxpayer. You may need a CAA if you have a transfer pricing dispute that is covered by a tax treaty or an advance pricing agreement (APA) between the relevant countries.

2 How do you initiate a CAA request?

To initiate a CAA request, you need to submit a written application to the competent authority (CA) of your country of residence or incorporation, depending on the applicable treaty. The application should include all the relevant information and documentation to support your position, such as the facts and circumstances of the case, the transfer pricing method and analysis, the tax adjustments and assessments, and the evidence of double taxation. You should also ensure that you meet the time limits and procedural requirements specified by the treaty or the CA. The CA will then review your application and decide whether to accept it and initiate the negotiation process with the other CA.

3 What are the steps of the CAA negotiation process?

The CAA negotiation process involves several steps, such as exchanging information and documents related to the case, consulting with each other to identify points of agreement and disagreement, trying to reach an agreement that eliminates or reduces double taxation, and implementing the agreement. During the exchange of information, the CAs will need to understand the taxpayer's identity, the nature and amount of the adjustment, the transfer pricing method and analysis, and the legal basis and rationale for the adjustment. The consultation may take place through written correspondence, telephone calls, video conferences, or face-to-face meetings. The agreement may be formal or informal depending on the treaty or CA's practice, and may include other terms such as interest, penalties, or correlative adjustments. Finally, the CAs will implement the agreement by issuing revised tax assessments or refunds to the taxpayer or providing other forms of relief such as waivers or credits. The taxpayer will then accept or reject the agreement and comply with any obligations or formalities required by the CAs.

4 What are the benefits of a CAA?

A CAA can offer several benefits to a taxpayer, such as avoiding or reducing double taxation and related costs and risks, providing certainty and finality on the transfer pricing issue, and preserving the relationship with the tax authorities. It can also enhance compliance and transparency, leverage the expertise and experience of CAs, and access alternative dispute resolution options, such as arbitration or mediation.

5 What are the challenges of a CAA?

A CAA can also present some difficulties for a taxpayer, such as dealing with lengthy and complex procedures and requirements, multiple tax authorities and jurisdictions, disclosing confidential information and documents, losing control over the negotiation outcome, having to accept compromises and concessions, and coordinating with other related parties or cases.

6 What are the best practices for a CAA?

To increase your chances of success in a CAA, you should prepare a robust and consistent transfer pricing documentation and analysis. It is also important to communicate effectively and proactively with the CAs and your advisors, providing complete and accurate information and evidence. Additionally, you should respond timely and cooperatively to the CAs' requests and queries, seeking alignment and coordination with other related parties or cases. Lastly, it is beneficial to evaluate the costs and benefits of a CAA versus other options, as well as seek expert advice from experienced professionals.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?