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JANUARY/FEBRUARY 2002 nomy. the outcome is likely at best to be neutral on both authorities in a foreign jurisdiction indicate that they will sides. The establishment of a bilateral or even multilateral make public the result of an APA. the German tax author agreement implies from the point of view of the German ities will immediately terminate their cooperation ax authorities a substantial extra workload which will have to be handled by staff with the necessary qualifica- 2.2.7. APAs are useful only in bilateral and multilateral tions, including language skills situations It should be noted that the fulfilment of the circumstances The decisive advantage is the security for all concerned on which an agreement was based will also have to be and the avoidance of subsequent disputes in mutual agree demonstrated and verified at a later date. APAs will gener- ment cases. The German tax authorities hold the view that ally require more work than a"conventional" MAP. it may well be expedient to lay down methods and details cause they do not cover known facts, but rather cover in the determination of transfer prices and to cooperate hypothetical future developments, requiring a definition of with foreign tax authorities in doing so. But it remains to subsequent analysis, whether the real events still meet a decisive turn for the better in the field of transfer pricing these critical basic assumptions. Consequently, the deci- Germany regards APAs as a service to the taxpayer, in that payer is within the discretion of the tax authorities in each APAs are"advanced"in the end and thus provide safety to country. e. g. to determine which of the APA requests pre- yet existing transactions or sented to it will be taken up first-against a background of restructuring (contrary to the legal obligation to apply the law to existing facts ). As a consequence of an APA, the ta limited resources. The promotion of APAs will on\a of the law with a view to the processes (e.g. transactions or successful if competent staff is available on a nation authorities would not be able to change their interpretation level. However, the German tax authorities have only lim- ited capacities restructuring )covered by the APA In the authors opinion, the unlimited application of APAs 2.2.4. Treaty provisions like Art. 25 of the OECD Model will not be feasible nor will the tax authorities apply it in Treaty as the legal basis for bilateral or multilateral every case, However, this should not be understood to APAs Bilateral or even multilateral agreements are \ell t an that the German tax authorities have adopted a nega- mes w of the APA procedure. On the contrary, subject achievable by a MAP in accordance with the relevant to personnel constraints, the German tax authorities are applicable income tax treaty. Although bilateral APAs do prepared to discuss APAs with other tax authorities within not differ from MAPS, nevertheless they are future-orien- the framework of MAPs tated, at least in the beginning. In this regard, treaty provi sions like Art. 25(1)of the OECD Model Treaty are the 2.3. Arbitration procedures will remain an exception legal framework for APAs, and not Art. 25(3)of the OECD Model Treaty as the OECD has stated, as the latter In the past, there have been repeated calls for an arbitration provision specifies the rules for a consultation procedure. procedure. At least in part, this requirement has since been met. Among the objectives of German treaty policy is the 2.2.5. The procedure is more or less in the hands of the incorporation of an arbitration procedure in German axpayer; cooperation is the essential factor income tax treaties. The Convention of 23 July 1990 Taxpayers may file a request for an APA. The tax author.(hereinafter: the Convention)on the elimination of double ities will decide on a case-by-case basis whether an APA associated enterprises, in force since 1 January 1995, has xation in connection with the adjustment of profits of will be entertained. Where the tax authorities agree to par- established a binding arbitration procedure in the territory taxpayer provide all relevant data. Due to the fact that an of the European Union. The existence of the Convention APA covers hypothetical future events, the scope of infor- places a much greater pressure than before on the compe mation that the tax authorities regard as necessary in the tent authorities of EU Member States to reach an agree context of an APA but need no be more compre- ment. It provides an appropriate counterweight for the MAP, where the facts are given and the only issue is to unlikely to be applied in practice. Its greatest shortcoming apply the law. If the taxpayer does not comply with a is that it applies, only in relation to EU Member States and request for information deemed relevant by the tax author- only in connection with the adjustment of profits between ities, the tax authorities are free to terminate the aPa pre associated enterprises ess, irrespective of the level the procedure has reached or Nevertheless the pressure on the competent authorities, as he time it has taken so far executed by the existence of an arbitration procedure, will 2.2.6. APAs are covered by both international and minimize the risk that a MAP will fai domestic tax secrecy and may not be published Due to the fact that APAs are a form of MAP, the rules of tax secrecy must be applied in the same manner. If tax
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