On May 11, 2018, the IRS Es ForC Pric and Mutual Agreement Program (APMA) released a new model that taxpayers must use when entering into a Pre-Price Agreement (APA) under the Rev section. Proc. 2015-41, 2015-35 I.R.B. 263 (Rev. Proc. 2015-41) Taxpayers who have not received APA should contact their AMA team leaders to determine whether this model should be used in their cases. However, since 2012, the total number of APMA employees has decreased. The number of economists decreased in 2018 (12) compared to 2017 (17) and 2016 (20), the number of team leaders (a mix of lawyers and accountants) rose from 55 in 2017 to 56 in 2018. In 2018, there were 6 managers and 3 assistant directors. Each assistant manager oversaw two managers who lead teams made up of both team leaders and economists.
The 2015-41 revenue procedure orders subjects to request a period of at least five predictable years, which may be extended by renewal procedures. Like the 2006-2009 revenue procedure, the new tax procedure allows taxpayers to apply for rollback years covered by an APA. In 2018, 20% of the deals concluded were roll-back years. Although 36 of the agreements were concluded for a five-year period, most cases involved six years or more (including return years). – Overall, the number of APMA employees declined slowly last year to 77 as of December 22, 2018. In addition, although India does not represent a significant part of the 2018 agreements, a significant number of Indian cases have been filed in recent years due to progress in relations between the IRS and Indian tax authorities. In 2018, India (more than any other country except Japan) and 20% of outstanding bilateral APAs (the second largest proportion after Japan) were filed in 2018. Given the uncertainty and serious risk of double taxation of multinationals investing in India, this is an extremely positive result.
The report shows that AAPs are still of great interest: in 2018, taxpayers filed 203 APP applications, up from 101 in 2017. The total number of completed APAs increased from 116 to 107 and the median period until the close of the APA increased slightly from 33.8 months to 40.2 months. The recommended rates for the crew working on the commercials are set by the APA (price from July 1, 2018). As the graph below shows, APAs with Japan represent more than any other country, with 39% of bilateral APAs completed in 2018. This is due to the maturity of app programs in the United States and Japan and the experience of negotiations between the APMA team and the relevant administrative team representing Japan`s national tax administration. If a critical assumption has not been met and the parties are unable to agree on how to revise the APA, the APA may be terminated. In 2018, the IRS did not cancel APA for the failure of a critical hypothesis (or for some other reason). The IRS Advance Pricing and Mutual Agreement (APMA) released the 19th Annual Advance Pricing Agreement (Report) released on March 22, 2019 in the 2019-03 announcement. The report provides an updated discussion on the APA program, including its activities and structure for calendar year 2018, provides a useful overview of how the program works and provides some guidance on what APA applicants can expect. The APA is an agreement between a tax payer and the tax administration of a state to create a prior guarantee with respect to the transfer pricing method. APAs simplify or prevent costly and time-consuming tax controls in contentious transactions.
The highlight of the 2018 report (continuing the trend) is the large number of bilateral APA coming with India. In recent years, india`s tax administration has focused particularly on transfer pricing, forcing many multinationals to file administrative complaints or litigation.