Bilateral Advance Pricing Arrangement (BAPA) Process Overview


BAPA process has been well elaborated and articulated in the Bilateral Advance Pricing Arrangement Manual. However, it only acts as a guidance on the best practices to approach the process and should not be construed as an advice but an awareness on the whole spectrum.

The following stages has been suggested to guide the BAPA process;

Early Engagement and Pre-filling: This stage provides a taxpayer the opportunity to discuss the suitability of a BAPA, the type and extent of information which may be required, and the scope of any analyses required for the completion of a successful BAPA with the tax administration.

The process also provides the taxpayer with an opportunity to discuss any concerns regarding disclosure and confidentiality of data, the term of the BAPA and for competent authorities to give an early indication of the likelihood of acceptance into the BAPA process.

It is suggested that the preliminary meetings are useful in seeking clarification on expectations and objectives of the taxpayer and tax administrations, providing an opportunity to explain the process and the policy of the tax administration in relation to BAPAs; as well as to provide details of any procedures in domestic law to implement the BAPA when concluded.

However, it is noted by taxpayers that all engagement experiences were not positive, citing;

  • tax administrations or officials were not willing to provide constructive feedback
  • tax administrations asked irrelevant questions, or their procedures were unnecessarily onerous.
  • the time taken by tax administrations to schedule pre-filing meetings was long
  • the content and format of the early engagement process were not well defined
  • competent authorities were not transparent on the circumstances under which they would accept a BAPA application and used non-standard internal guidelines (e.g., tax revenue impact) to assess the pre-filing request.

The BAPA Application and Acceptance Stage: This stage has been defined to involve the development and submission of a taxpayers BAPA application and the relevant activities to be undertaken by competent authorities to determine whether the application should be accepted into a BAPA Programme.

The BAPA detailed proposal application should consider domestic law or procedural requirements. As provided in the OECD Transfer Pricing Guidelines 2017, a BAPA proposal application should include the following;

  • The transactions, products, businesses or arrangements that will be covered by the proposal.
  • The enterprises and permanent establishments involved in these transactions or arrangements
  • The other country or countries which have been requested to participate
  • Information regarding the world-wide organizational structure, history, financial statement data, products, functions and assets (tangible and intangible) of any associated enterprises involved
  • A description of the proposed transfer pricing methodology and details of information and analyses supporting that methodology, e.g., identification of comparable prices or margins and expected range of results.
  • The assumptions underpinning the proposal and a discussion of the effect of changes in those assumptions or other events, such as unexpected results, which might affect the continuing validity of the proposal
  • The accounting periods or tax years to be covered
  • General description of market conditions (e.g., industry trends and the competitive environment)
  • A discussion of any pertinent ancillary tax issues raised by the proposed methodology
  • A discussion of, and demonstration of compliance with, any pertinent domestic law, tax treaty provisions and OECD guidelines that relate to the proposal
  • Any other information which may have a bearing on the current or proposed transfer pricing methodology and the underlying data for any party to the request

Post BAPA Acceptance and Information gathering: At this stage once the BAPA application has been accepted tax administrations may undertake whatever steps they deem appropriate in the circumstances to form their positions for discussion with the treaty partner.

The aim of this stage of the BAPA process is for the competent authorities to have all relevant information, data and analyses they need to form positions and for the discussions with the treaty partner to commence.

Position Paper and Competent Authority Discussion: At this stage, once a competent authority has analyzed the information received from the taxpayer, it will form its position and commence discussions with its treaty partner.

The position papers should include sufficient detail to enable the treaty partner to understand the relevant issues. They include but not limited to;

  • legal name and address and taxpayer identification number of the taxpayer, its related persons in the other jurisdiction, if applicable, and the basis for determining the association
  • the contact details of the competent authority official in charge of the case
  • background to the covered transaction(s), including a summary of the taxpayer’s business, functional analysis, and summary of financials

Finalization and Implementation: At this stage, finalization and implementation refers to the period in the BAPA process after which the competent authorities have agreed to the terms of the BAPA. This stage typically involves;

  • Finalization of the BAPA
  • Domestic implementation of the BAPA

Ongoing Monitoring: Taxpayers are required to abide by the terms of the BAPA throughout the covered period, including ongoing compliance with the critical assumptions. If the taxpayer fails to abide by the terms and conditions, then the BAPA should no longer be applied. The ongoing compliance requirements on the taxpayer are often contained in the BAPA or in the domestic agreement implementing the BAPA.


Author: Eddie Opiyo