APA applications submitted by the end of the year will allow exclusion of costs incurred in 2018 and 2019 from the limitation based on art. 15e of the CIT Act
On 5 November 2019 the President signed the Act on settlement of disputes concerning double taxation and conclusion of advance pricing agreements (APA).
The Act implements the following changes:
- it puts in order the procedural regulations concerning issuance of decisions on conclusion of advance pricing agreements (APA),
- it modifies the limitations resulting from Article 15e of the CIT Act regarding the costs of intangible services.
Additionally, the Act provides for a new procedure regarding disputes relating to double taxation and for a new instrument of cooperation between taxable persons and the tax administration, i.e. the so-called cooperation agreement which may reduce the frequency of tax inspections and offer the possibility to agree some essential tax-settlement ralated aspects with the tax authority.
The Act lays down the comprehensive APA-related procedure. For this reason, the APA-related regulation was repealed from the Tax Ordinance Law. The legislator also finally resigned from simplified APAs which were to be issued for the purpose of exclusion of the limitations under Article 15e of the CIT Act. Therefore, to exclude the limitation resulting from Article 15e of the CIT Act, it will be necessary to get the APA according to the new Act. However, it bears emphasizing that if the request for APA is filed by 31 December 2019, exclusion of the limitation under Article 15e of the CIT Act will apply to costs covered by the APA during the basic period of protection and also during the year preceding submission of the request, i.e. 2018. As Article 15e(16) of the CIT Act will be repealed on 1 January 2020, the requests filed in 2020 will exclude the limitation under Article 15e only with respect to expenditure incurred after 1 January 2020 (on condition that the APA decision is issued).
As regards obtaining the APA, it bears emphasizing that the scope of the request for APA significantly overlaps with the scope of the local transfer pricing documentation, which should reduce the workload involved in preparation of the request.
Additionally, it is now possible to submit a request for APA for transactions covered by an inspection or tax proceedings or administrative court proceedings for a period earlier than two tax years preceding the year of filing the request for APA.
Moreover, the rules for verifying previously issued pricing agreements have also been changed and will generally take the form of verification procedures.
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