Remarkable Developments to IRS Advance Pricing Agreement Process: What Lies Ahead in 2016 and Beyond
On August 12, 2015 the Internal Revenue Service (IRS) released the long awaited substantial revision to the revenue procedure governing the process for obtaining advance pricing agreements (APAs). An Advance Pricing Agreement allows taxpayers to obtain agreement from the relevant tax authorities regarding the proper treatment of their transfer pricing issues, thereby reducing significantly the transfer pricing compliance burden going forward. The final APA revenue procedure includes a much more robust process that reflects the IRS’ twenty-plus years of experience negotiating agreements with both taxpayers and treaty partners.
In this LIVE Webcast, a notable panel of thought leaders and professionals assembled by The Knowledge Group will provide an in-depth analysis of the fundamentals as well as the implications of the revised procedures to taxpayers looking to access the IRS Advance Pricing Agreement Process. Drawing on their experience in both the public and private sector, the panel will help the audience identify and better understand the important issues that arise during the process of obtaining an APA, and discuss their recommended best practices for using the process efficiently and effectively.
Key topics include:
- Revenue Procedure 2015-41
- Implications of the BEPS initiative to the U.S. Transfer Pricing Regime
- Advantages and Disadvantages of the Final Revenue Procedure
- Bilateral and Multilateral APAs
- Best Practices
Mayer Brown LLP
Dearson, Levi & Pantz PLLC
Mantegani Tax PLLC
US APA PROCEDURES – Updated for the post-BEPS world of tax disputes
Rev. Proc. 2015-41
- Explicit preference for bilateral and multilateral APAs where available;
- IRS has power to expand the APA to address “interrelated matters;” which could impact:
- additional years,
- additional issues, and/or
- additional treaty countries
- Submission requires significantly more data than the prior revenue procedure
- Mandatory pre-filing requirements for certain type of cases (a memorandum and, potentially, pre-filing conference) but pre-filing conference can be requested in all cases.
- Examples of mandatory cases include:
- requests for unilateral APAs when a bilateral or multilateral is available, e.g. where the counterparty is a treaty country that has an APA program;
- requests involving intangible development arrangements; and
- requests involving global dealing operations and/or business restructuring.
Timing of Filing
- Request due on or before the filing date of the U.S. tax return for the year intended to be the first APA year.
- APA Request is considered filed only when it is “complete”
- Dollar file option still available, where application deemed filed when filing fee paid IF full application filed within 120 days
- Special rule for bilateral and multilateral APAs– A complete APA request must be filed with APMA within 60 days of filing the corresponding submission with a foreign jurisdiction (rule designed to address practical problems of case development arising from vastly different filing deadlines between and among treaty partners)
Content and Form of Requests
- Abbreviated only upon approval by APMA
- Expanded information requirement per items listed in the Appendix, including:
- Diagrams of all covered issues, including all the relevant entities involved in such covered issues
- The entire controlled group’s legal structure, with clear indications as to the proposed covered group members
- The entire controlled group’s tax structure, including ownership and tax filing characterization (opaque, passthrough, hybrid, disregarded);
- The entire controlled group’s business units and similar divisions as used by management, as well as a table or narrative showing the relationship between the business units and the entities in the group;
- The value chain of the proposed covered group; and
- Charts identifying executive-level functions or occupational roles within the proposed covered group, including names and headcounts for relevant business units
- Narrative with reference to state of law (e.g., rulings, determinations, and proceedings)
- Proposed TPM
- Proposed APA Terms and Conditions
- Tax returns, financial statements, Forms 10-K, previously filed Annual Reports, etc for the past 3 years
- Copies of all relevant intercompany agreements
- Copies of all other available contemporaneous documentation under section 6662
- Filing fee increased to $60,000, but will cover multiple requests filed by the same controlled group within a sixty-day period.
- Taxpayers can request to roll forward a competent authority resolution into an APA
- “Coordination and collaboration” with other IRS offices (e.g., Exam) relative to rollback requests
- Except in unusual cases, APMA will not agree to cover a closed filed year with a rollback of a unilateral APA request
- For APA Renewals, taxpayers must file a complete APA request or obtain APMA’s prior permission to file an abbreviated one
- Abbreviated requests may be appropriate if APMA agrees that applicable law, facts and circumstances, economic conditions, proposed TPM, etc., of current APA are “reasonably expected to be substantially the same as those proposed to be covered by the renewal APA.”
Why Request an APA?
- Similar to a MAP, a bilateral or multilateral APA can simultaneously resolve issues otherwise subject to audit in the US and a foreign jurisdiction on terms that avoid double taxation.
- An APA can be an effective means to resolve a transfer pricing issue with the potential to recur over multiple cycles
- Provides prospective certainty.
- Through rollback procedures, an APA can resolve years currently subject to an audit.
- Although the upfront cost can be significant, an APA can avoid the future costs of both preparing transfer pricing documentation for the years covered by the APA and defending against audits in multiple jurisdictions.
- A bilateral APA may be viewed as persuasive (albeit non-binding) by other jurisdictions that are not party to the APA.
- An APA can provide material financial statement benefits.
- A bilateral APA can be an effective means to mitigate the uncertainty associated with the implementation of BEPS proposals in non-US jurisdictions.
- How long does an APA take to complete?
- How much will an APA cost?
- Are APAs and the information submitted in the APA process kept confidential?
- What happens when the IRS fails to reach agreement with either the taxpayer or treaty partner on an APA?
- How are disputes between the IRS (or foreign government) and a taxpayer regarding a bilateral APA resolved?
- How will the APA process be affected by BEPS?
Why should taxpayers consider APAs post-BEPS?
- BEPS Actions 8-10 are inspiring significant additional audit adjustments around the world, with tax authorities taking more aggressive and often inconsistent positions that give rise to more double taxation.
- An APA can help manage the risks associated with the new disclosure requirements under BEPS Action 13 (Master File/Local File/CbC report), by giving taxpayers a controlled forum to work through the facts in a disciplined and objective fashion.
- Because BEPS will inevitably result in more disputes and incidences of double tax, taxpayers should consider requesting APAs now before the full implementation of BEPS results in further strains on competent authority resources.
What role can/should taxpayers take in the APA process?
- Taxpayers must provide the same information to all tax authorities involved in the APA.
- Taxpayers should be prepared to provide additional analysis to support the tax authorities’ development of their positions.
- Taxpayers can proactively identify and present both problematic issues and the preferred solutions to the tax authorities.
- Where the treaty partners involved in an APA have different views of the TPM proposed by the taxpayer, taxpayers should consider making a joint presentation explaining its position.
- Taxpayers can provide a back channel for exchange of information between the tax authorities where cases get stuck
Who Should Attend:
- Tax Lawyers
- Tax Preparers
- Tax Practitioners
- Tax Professionals
- Compliance Officers
- In-House Counsel
- Legal Advisers
- Other related/interested Professionals and Organizations
Jason Osborn is a Tax partner in the firm's Washington, DC, office focusing primarily on transfer pricing and other international tax issues. He represents multinational clients in a wide range of industries in negotiations for bilateral advance pricing agreements (APAs) and in transfer pricing controversies. He also provides multinational clients with sophisticated international tax planning services. His transfer pricing experience and insight is extensive and varied and includes cost sharing arrangements, transfers of tangible and intangible property, intercompany services, intercompany loans and guarantees, global dealing and cross-border restructurings. His industry experience includes pharmaceuticals, software, electronics, financial institutions, insurance, automotive, consumer products, energy and transportation, among other industries.
Jason served from 2008 through 2012 in the IRS Office of Associate Chief Counsel (International), most recently as senior technical reviewer in the transfer pricing branch, and before that, as a team leader in the APA Program. In this connection, he provided technical and strategic guidance and advice to the IRS in matters related to transfer pricing, negotiated a significant number of complex APAs, and served as a member of the APA Program's coordination group for financial institutions.
Jason Osborn is a Tax partner in the firm's Washington, DC, office focusing primarily on transfer pricing and other international …
Zion Levi draws upon more than 20 years of legal experience to successfully represent clients before the Advance Pricing Mutual Agreement (APMA) Office in connection with unilateral and bilateral advance pricing agreements (APAs) and requests for competent authority assistance. Mr. Levi also represents taxpayers in IRS audits and before IRS Appeals, and regularly counsels on matters such as establishing and implementing transfer pricing policies, ascertaining arm’s length prices and related intercompany arrangements, preparing related-party agreements and other contemporaneous documentation, and obtaining expert economic analyses.
Zion is the author of Chapter 9, “Cost Sharing Arrangements,” of BNA’s Tax Management Portfolio #890 (Transfer Pricing: Alternative Practical Strategies), is a member of the ABA Section of Taxation’s Transfer Pricing Committee, and holds an LL.M. in taxation from New York University School of Law and a J.D. from Brooklyn Law School.
Zion Levi draws upon more than 20 years of legal experience to successfully represent clients before the Advance Pricing Mutual …
As a transfer pricing advisor with more than twenty years of experience in both the private sector and the Internal Revenue Service, Barbara advises multinational enterprises regarding a wide range of transfer pricing matters.
Barbara served as a Competent Authority Analyst and APA Team Leader from 2009-2013 at the Internal Revenue Service U.S. Competent Authority office and Advance Pricing and Mutual Agreement Office. Her duties included negotiating the settlement of numerous double tax cases and advance pricing agreements with tax authorities from Japan, India, Denmark, Belgium and Canada. In these negotiations Barbara gained valuable knowledge and understanding regarding how to frame and advocate for positions with a high degree of success.
As a tax advisor both at a global law firm and at Big 4 accounting firms, Barbara has advised multinational enterprises regarding planning and development of a global transfer pricing strategy, documentation, cost sharing arrangements, global restructuring, and treaty-based dispute resolution, i.e., competent authority assistance and advance pricing agreements. With her strong background in technical writing and analysis, Barbara has published articles on a wide range of transfer pricing topics, including advance pricing agreements, mutual agreement procedures, and transfer pricing documentation (including country-by-country documentation). She has been a speaker at numerous tax conferences and seminars, including meetings sponsored by the Tax Executives Institute, the American Bar Association, the International Fiscal Association, and Bloomberg BNA.
As a transfer pricing advisor with more than twenty years of experience in both the private sector and the Internal …
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