99. The APP agreement should provide parameters of an acceptable level of divergence for certain assumptions in advance and should only be renegotiated if these parameters are exceeded. Tax administrations should take on two important tasks to deal with an APA request: first, assessing demand and, second, negotiating an agreement with the other tax authority. 13. An APA is an agreement between tax authorities on how certain transfer pricing transactions between subjects will be taxed in the future. As a result, an APA often prevents the need for a dispute between tax authorities over the transactions contained in the APA. AAPs are an exemplary method of preventing litigation. Amazon enters into e-book price agreements with Simon-Schuster and HarperCollins. These customers have special pricing agreements with Oi and are charged less than the price of regular local calls when they call such DF access numbers. It prevents Microsoft from entering into certain restrictive and discriminatory price agreements. 128. List of legal agreements between related companies that affect APA transactions.

For example, licensing agreements, sales contracts, distribution agreements, research and development service contracts. Three companies in the investigation said they planned to negotiate a pre-price agreement with I. R.S., and 71 others said they would consider it. The Wall Street Journal reports that Simon and Schuster and i Newscorp`s stable colleague, Harper Collins, have both entered into new price agreements with Amazon. 88. The formal APA should take effect through formal agreements between the relevant tax administrations (as part of a multilateral APA, there could be an agreement between all tax administrations or a series of bilateral agreements between the various tax administrations). 95. In essence, critical assumptions are essential to the APA and must be carefully developed to ensure that the APA is able to reflect arm length pricing.

Function analysis is the key tool for every transfer pricing job. The content should be tailored to the taxpayer concerned and to transactions under the APA. Depending on the situation, the APA application should also, to some extent, indicate which unit performs which functions throughout the MNE`s business. However, tax authorities should keep in mind that they do not assess transactions that are not in the APA. This information must be sufficient to understand both ends of the transactions to be verified.