Considerations in deciding to pursue a unilateral or bilateral advance pricing agreement
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Considerations in deciding to pursue a unilateral or bilateral advance pricing agreement

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Kirsti Longley of Deloitte Tax LLP and Carlos Serrano Palacio of Deloitte Spain explain the benefits of advance pricing agreements in managing transfer pricing exposure, and the pros and cons of unilateral and bilateral advance pricing agreements.

Transfer pricing (TP) continues to be an enforcement priority of tax authorities around the world, and TP risk is one of the major risks faced by multinationals. Advance pricing agreements (APAs), which provide a principled and cooperative process to proactively agree TP outcomes, have been a key element in reducing or managing this risk for many multinationals.

From a multinational enterprise (MNE) perspective, the primary benefits of an APA are:

  • Providing certainty regarding future TP results;

  • Avoiding protracted TP audits; and

  • Avoiding potential double taxation.

This article will provide an overview of unilateral and bilateral APAs and discuss considerations when deciding between the approaches.

What is an APA?

An APA is a voluntary process that enables an MNE to obtain TP tax certainty on specified cross-border intercompany transactions and aims to avoid TP disputes on these transactions for a specified period. Different jurisdictions tend to have commonalities in their APA procedures, although there are also some distinguishing features (common elements of the APA process may be found in the OECD Transfer Pricing Guidelines, the Bilateral Advance Pricing Arrangement Manual and the EU Joint Transfer Pricing Forum Guidelines on APAs).

An APA is initiated by a taxpayer through filing an APA request that sets out:

  • The proposed covered years (generally a five-year prospective term, and with potential rollback to filed years);

  • The proposed transactions to be covered by the APA; and

  • The selection and application of the proposed TP method.

The APA request will also provide an overview of the multinational group and the functions performed, assets employed, and risks assumed by the relevant members of the MNE that are parties to the proposed covered transactions. In some jurisdictions, taxpayers may also be required to hold a pre-filing meeting prior to submitting the APA request. In some other jurisdictions, a pre-filing meeting is voluntary, and in others, it is not possible to have a pre-filing meeting before submitting an APA request. An APA user fee may also need to be paid to the relevant tax authority prior to filing the APA request, depending on each country’s APA procedures.

An APA can be unilateral, bilateral, or multilateral. The parties to a unilateral APA are the taxpayer and the tax authority in its jurisdiction. The parties to a bilateral APA are the two taxpayers and the tax authorities in their relevant jurisdictions, and the parties to a multilateral APA are the three or more taxpayers and the tax authorities in each of their relevant jurisdictions. As this article focuses on unilateral and bilateral APAs, multilateral APAs are not further discussed.

Once an APA request has been filed, the relevant tax authority(ies) will work to understand and evaluate the taxpayers’ request, which generally includes meeting the taxpayers and issuing questions for taxpayers to respond to, either verbally or in writing. The tax authority(ies) will then develop their position regarding the APA request.

In the case of a unilateral APA, the tax authority and the taxpayer will work directly to finalise the APA after the tax authority has completed its due diligence. In the case of a bilateral APA, the two tax authorities will endeavour to reach what is termed a ‘mutual agreement’, which is an agreement between the two tax authorities on the terms of the bilateral APA. At the conclusion of the APA process, an APA will be executed between the taxpayer and the tax authority in its jurisdiction, which in the case of a bilateral APA will match the key terms of the mutual agreement reached between the relevant tax authorities.

The APA will also contain critical assumptions that allow the taxpayer or the tax authority(ies) to revise or cancel the APA generally when business operations materially change during the APA term, and a set of criteria to apply, which must be monitored each year of the APA term to ensure compliance with the terms of the APA.

If an MNE complies with the terms of the APA, it will be protected against TP adjustments for the transactions specifically covered by the APA and the potential imposition of tax penalties by the tax authorities that are parties to the APA during the years covered by the APA.

Bilateral versus unilateral APA: considerations


Generally, bilateral APAs are available pursuant to the mutual agreement procedure (MAP) article of the relevant tax treaty. Accordingly, where there is no treaty in force between the jurisdictions affected, a bilateral APA may not be a viable option. As such, a unilateral APA to cover transactions that are not with a treaty partner country may be a good alternative to achieve TP certainty in one country, depending on the facts and circumstances.

Conversely, some jurisdictions may not allow or provide for unilateral APAs, or may require upfront approval to request a unilateral APA where a transaction(s) could be covered under a bilateral APA under the applicable tax treaty. For example, in the US, taxpayers are required to explain in a mandatory pre-filing memorandum why a unilateral APA is appropriate for a transaction that could be covered by a bilateral APA. Examples provided as to why a taxpayer may believe a unilateral APA is appropriate are where there is no APA process with the treaty country, or the taxpayer’s proposed covered transactions involve so many treaty countries that the taxpayer believes that bilateral (or multilateral) APAs would be impractical. After reviewing the mandatory pre-filing memorandum, the Internal Revenue Service (IRS) will inform the taxpayer as to whether it will accept a unilateral APA request (IRS Revenue Procedure 2015-40).

As such, one of the first steps for a taxpayer to decide between a unilateral or bilateral APA is to consider the availability of both options, depending on the transactions to be covered and the countries involved.

Double taxation certainty

Because TP involves two or more countries, bilateral APAs are typically the preferred approach, as only they can ensure that double taxation will not arise. Undergoing a TP audit, pursuing local administrative appeals, or judicial remedies will often leave a TP adjustment on the table that will likely result in double taxation, and it will be necessary to go through a MAP to seek double taxation relief. A bilateral APA removes the need for this additional work and provides the benefit of certainty for future years.

In some jurisdictions, bilateral APAs may also provide certainty for non-TP issues that are otherwise covered by the relevant tax treaty, such as the character of a payment and the extent to which a payment is subject to withholding tax. When non-TP issues are not able to be covered by a bilateral APA, alternatives such as treaty articles similar to Article 25.3 of the OECD Model Tax Convention may be explored to obtain certainty on those issues.

By comparison, a unilateral APA only provides certainty to one side of the transaction.

Consider an example where an MNE obtains a unilateral APA with Country A to cover the sale of goods from Country A to Country B. In year one of the unilateral APA, the parent company reported in its tax return operating income of $75, which included income from the sale of goods by the parent company, and the subsidiary company reported operating income of $25 in its tax return, which included the expense related to the purchase of goods by the subsidiary country.

Table 1: Time of filing a unilateral APA request (year one)

Tax return filing position

Operating income

Tax rate


Parent (Country A)




Subsidiary (Country B)








In this example, the multinational group has 100 units of total income. The group’s global effective tax rate is calculated to be 27.75% (27.75 tax / 100 income = 27.75%).

In year two, the unilateral APA is concluded and it is determined that the parent company should have received an additional $10 in income from the subsidiary in Country B in year one. The unilateral APA provides for an adjustment to the tax return of the parent company for year one, but no such correlative adjustment is available to the tax return of the subsidiary in Country B. For example, the US TP regulations prohibit taxpayers from filing an amended return that reduces US taxable income based on adjustments to controlled transactions. This rule prevents taxpayers from filing untimely or amended tax returns to adjust their transfer prices downwards post year end.

Similar rules exist in most other tax jurisdictions; however, there are exceptions. For example, in Spain, although rare in practice, there is no rule to prohibit taxpayers from requesting an amendment of their tax returns relating to downward TP adjustments. Generally, the request will not be accepted automatically by the Spanish tax authority, and express confirmation would be needed.

The results of the unilateral APA are reflected in Table 2 below.

Table 2: Conclusion of a unilateral APA request (year one)

Unilateral APA adjustment to Country A only

Operating income

Tax rate


Parent (Country A)




Subsidiary (Country B)








As a result of the unilateral APA, the group has been taxed on $110 of income even though it only had economic income of $100. As such, the MNE group will face double taxation on the $10. Although there may be domestic remedies available in some countries (for example, the possibility to amend the tax return in Country B) or treaty remedies (for example, through a MAP) to eliminate double taxation, this would not be available through the unilateral APA process. Furthermore, even if relief were available through domestic remedies, obtaining such relief would likely be very costly in terms of time and resources.

In contrast, if a bilateral APA had been obtained, the mutual agreement between the two countries and the resulting APAs would have provided for any adjustment as a result of the bilateral APA to be implemented in Country A and Country B, so as to eliminate any double taxation.

Furthermore, consider that after the MNE group has adjusted its TP to take into account the outcome of the unilateral APA from year two onwards (such that the overall price of the goods purchased by the subsidiary in Country B from the parent company in Country A has been increased), the tax authority in Country B undertakes a TP audit of the subsidiary for year two and makes an adjustment to reduce the price of the goods purchased from the parent company in Country A by the subsidiary company in Country B. To eliminate any double taxation resulting from this adjustment, the MNE group would need to consider if a MAP was available between Country A and Country B.

Considering the unilateral APA, the tax authority in Country A may not be willing or able to deviate from the position in the unilateral APA (depending on its country’s APA procedures), which may make the elimination of double taxation challenging. In contrast, if a bilateral APA had been obtained between Country A and Country B, there would have been no TP audit of the transactions covered by the bilateral APA (assuming that the MNE group complied with the terms of the bilateral APA), and therefore no adjustment to TP for the APA period.

Accordingly, a bilateral APA is the preferred approach in relation to the elimination of double taxation risk, as compared to a unilateral APA.

Timing and cost

The time required to obtain an APA is frequently cited by MNEs as one of the disadvantages of requesting an APA and is a factor that is often considered by MNEs in deciding whether to pursue an APA. The time required can vary greatly depending on a number of factors, including:

  • The complexity and materiality of the covered transaction(s);

  • Whether the APA is unilateral or bilateral; and

  • The treaty partners involved (if any) and their relationships.

While statistics for all countries that have APA programmes are not yet widely available, it is generally expected that a unilateral APA will take less time to conclude than a bilateral APA, considering there is only one tax authority involved. This expectation is consistent with the latest statistics released by the IRS for calendar year 2022, which showed that the median number of months to complete a unilateral APA versus a bilateral APA in 2022 was 17.7 months versus 45.7 months, respectively (IRS Announcement 2023-10). The EU also publishes annual APA statistics for EU countries, which show it often takes two years or longer to complete bilateral APAs by EU countries.

In the future, MNEs should have greater access to APA statistics, as starting from the 2024 calendar year, all OECD/G20 Inclusive Framework on BEPS members with an APA programme should start reporting annual APA statistics. These statistics will be published on the OECD’s website in a common format and will increase visibility for taxpayers and help to aid them in their decision making.

An additional factor to consider in deciding whether to pursue a unilateral or bilateral APA is cost. It is generally expected that a unilateral APA will be less expensive to obtain than a bilateral APA, considering there will only be one APA filing fee required (if any) and fees for assistance with the APA process required in one country.

Accordingly, given time, cost, and other considerations, unilateral APAs may be seen for some MNEs as a more practical and efficient option to consider – for example, if there is perceived higher risk on one side of the transaction – or as a first step before potentially obtaining greater certainty through a bilateral or multilateral APA.

Key takeaways

MNEs may want to consider APAs as a key element in managing TP exposure and reducing TP controversies. Generally, bilateral APAs are recommended because they provide greater certainty for the elimination of any potential double taxation. However, the considerations set out above should provide further assistance to an MNE in determining whether to pursue a bilateral or unilateral APA.

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