United States: IRS releases annual transfer pricing APA report for 2012April 4, 2013
The US Internal Revenue Service (IRS) released its annual report for 2012 on advance pricing agreements (APAs) and the advance pricing and mutual agreement (APMA) program for transfer pricing transactions. The report was issued as IRS Announcement 2013–17 dated 25 March 2013.
With effect from 26 February 2012, the advance pricing agreement (APA) program and the functions of the Office of the US Competent Authority (USCA), including mutual agreement procedures (MAPs), related to transfer pricing, permanent establishment and allocation issues, were merged into APMA, a single program within the Large Business and International Division (LB&I) of the IRS.
The APMA program, as the successor to the APA program, continues the procedure whereby taxpayers and the IRS can enter a binding agreement under which the IRS accepts the transfer pricing methodology (TPM) used by the taxpayer, and agrees not to seek a transfer pricing adjustment under section 482 of the US Internal Revenue Code (IRC), if the taxpayer files its tax returns consistent with the agreed TPM.
The APMA program is intended to resolve potential transfer pricing disputes between taxpayers and the IRS prior to the tax return auditing process.
The 2012 report consists of three parts and two appendices.
Part I of the report summarizes the structure, composition and operation of the AMPA program.
Part I of the report notes that new revenue procedures are expected to be released in 2013 to replace the current procedures for APA and MAP applications outlined in IRS Revenue Procedure (Rev. Proc.) 2006–09, as supplemented by Rev. Proc. 2008-31.
Part I also notes that the model APA agreement is being reviewed for future changes.
Part II of the report presents the statistical data related to the APMA program results, both in table and graphical format.
According to Part II of the report, a single-year high of 140 APAs were completed in 2012, comprised of 37 unilateral APAs and 103 bilateral APAs. In addition, 83 APAs were renewed in 2012, consisting of 28 unilateral APAs and 55 bilateral APAs. There were 126 new APA applications filed in 2012, consisting of 24 unilateral applications and 101 bilateral applications.
The number of APA requests pending at the end of 2012 was 391, including both new requests and requests for renewals. Part II also includes the statistical results of the APA program by reference to industry sectors.
Part III of the report provides general descriptions of various elements of the APAs executed in 2012, including types of tested parties, covered transactions, functions and risks, as well as transfer pricing methods used, critical assumptions and the amount of time taken to complete APA requests during 2012.
With regard to the length of time needed to complete an APA request during 2012, Part III of the report indicates an average time of 41.7 months and a median time of 39.8 months, taking into account both new requests and requests for renewal. Timing data was also provided separately for unilateral and bilateral requests.
The report includes in the appendices the text of a model APA agreement between a taxpayer and the IRS, and the contact information of the APMA program staff.
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