IRS issues new APA procedural guidance

October 29 2015

On August 12 the IRS issued final guidance (Rev. Proc. 2015-40) significantly updating procedures for requesting and obtaining an advance pricing agreement (APA) from the Advance Pricing and Mutual Agreement (APMA) program. All new APA requests will need to be filed under these “new procedures”, however, an APA request may be filed under the prior procedures (Rev. Proc. 2006-9), if a new and substantially complete request is filed no later than December 29, 2015.

The new procedural guidance, reflects a number of public comments from the business community and advisors following the draft version released by the IRS in November 2013. In some respects, the new guidance also reflects the OECD’s base erosion and profit shifting (BEPS) project and other international tax trends. The new procedures incorporate many of the principles that have guided the APA process in the past and reflect the IRS’s continuing commitment to the APA process as a mechanism for avoiding and resolving transfer pricing disputes.

Important Changes

The new procedures modify prior practice in terms of:

increasing disclosure requirements (in some cases, a mandatory requirement for pre-filing conferences and memoranda);

formally introducing the concept of ‘interrelated matters’ when evaluating a taxpayer’s proposed coverable issues (also discussing consequences for both taxpayers and the IRS);

encouraging, and in some cases mandating, the rollback of the TP method adopted in the APA;

requiring taxpayers to extend the statute of limitations for each year of the APA term, and clarifying the type of extensions that may be required;

clarifying that an APA request may be a ‘factor’ in satisfying the US documentation requirements (Section 6662), and

reinforcing the IRS’s strong preference for bilateral APAs by permitting unilateral APAs only in very limited circumstances.

For full details of the Revenue Procedure 2015-41 see the pdf link below. At 87 pages it is not a short read, but contains a very interesting insight into the current thinking of the IRS in respect of APAs.

http://www.irs.gov/pub/irs-drop/rp-15-40.pdf