United States – Interim Guidance on APA Requests

Transfer Pricing in the News

The IRS issued interim guidance providing the Advanced Pricing and Mutual Agreement (APMA) with new processes and criteria for evaluating the suitability of accepting APA requests and offering an optional pre-request process to provide taxpayers with advice before they make a formal APA request. Further guidance regarding the process will be released, but the interim guidance clarifies IRS intentions to enhance its selectivity when accepting APA requests. The interim guidance highlights a heightened scrutiny and early deselection process to avoid tying up APMA and taxpayer resources unproductively pursuing APA requests with low probability of completion or desired outcome. 

Interestingly, the IRS discusses heightened selectivity on both overly complex fact patterns, presumably higher risk transactions and overly simplistic, presumably low risk transactions. The interim guidance would also now require APMA consult with IRS transfer pricing audit function, i.e. Transfer Pricing Practice (TPP), to “…properly match the compliance risk presented by the transfer pricing issues proposed to be covered by an APA with the resources that would be required to achieve certainty for the taxpayer.”

TPP involvement may provide APMA with added bandwidth to evaluate APA requests and pre-requests, but it may also indicate broader IRS concerns around APMA engaging in APA negotiations related to transfer pricing positions TPP may view as compliance risk for the United States.

For taxpayers, APA requests are already a costly and lengthy avenue for gaining certainty. APA requests requiring consultation with TPP may raise concern for middle market taxpayers seeking the cooperative and voluntary nature of an APA process and potentially being advised that a domestic transfer pricing audit is the best work stream alternative to provide certainty.

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