IRS mulls changes in advance pricing agreements
The Internal Revenue Service’s Advance Pricing and Mutual Agreement Program is looking for comments on a proposed revision to the template for advance pricing agreements.
An advance pricing agreement allows multinational companies and the IRS to decide ahead of time on an appropriate transfer pricing mechanism for the corporate taxpayer’s international transactions. The revision would represent a significant change from previous templates. The IRS wants to streamline the process for faster and more accurate drafting of advance pricing agreements, and provide more guidance to taxpayers in preparing the proposed draft APA that’s required as part of an APA request. It also hopes to facilitate the Advance Pricing and Mutual Agreement Program’s review of draft APAs, and ease the Mutual Agreement process for bilateral and multilateral APAs.
To achieve that set of goals, the template presents menus of options for selection. The various options cover a wide range of situations, to minimize the need for custom drafting and negotiation over the text of the APA.
The template also includes a large table of defined terms, greater detail on certain topics such as financial statements, conforming adjustments, and the early termination of an APA, and some options that will require special justification by a taxpayer who wants to use them.
There are also two appendices. Appendix A addresses covered issues, covered methods, income reporting and conforming adjustments. Appendix B covers critical assumptions. They’re both written to be adapted for use in a competent authority Mutual Agreement if a treaty partner is willing to use them.
The proposed template is more comprehensive and longer than previously published templates. To help taxpayers become comfortable with the template, it comes with detailed instructions, and a filled-in example supplemented by explanatory comments. The template will also provide a roadmap for taxpayers of possible issues and approaches in drafting an APA.
The template is intended for use with APAs requested under Rev. Proc. 2015-41 and includes some changes to conform to that revenue procedure.
Taxpayers can request Microsoft Word and Adobe PDF files for both the template and the filled-in example by emailing firstname.lastname@example.org, with the subject line “request”. Comments on the proposed template should be sent to email@example.com by Oct. 31, 2017, with the subject line “comments”. The IRS said the comments should be in narrative form rather than as a markup. Comments that reference specific pages of the template or the example should follow the pagination of the Adobe PDF files.