Advance pricing agreements


Does the country have an advance pricing agreement (APA) programme? If so, is the programme widely used? Are unilateral, bilateral and multilateral APAs available?

The US established the world’s first formal APA programme in 1991. The current programme is called the Advance Pricing and Mutual Agreement (APMA) programme. Unilateral, bilateral and multilateral APAs are all available. However, the APMA programme may require special justification to enter into a unilateral APA covering transactions involving a treaty partner for which a bilateral or multilateral APA would be available.


Describe the process for obtaining an APA, including a brief description of the submission requirements and any applicable user fees.

Taxpayers initiate the process for obtaining an APA by filing an APA request with the APMA programme that meets the content requirements of Revenue Procedure 2015-41. The APA request generally must be filed by the date that the taxpayer files its income tax return for the first taxable year of the APA term. However, a taxpayer can obtain a 120-day extension to file an APA request by paying the applicable user fee (discussed below) by this date. Bilateral and multilateral APA requests must be filed within 60 days of the filing date of the APA request with the foreign tax competent authority. Among other substantive and procedural requirements, the APA request must include a full functional and factual analysis and proposals for one or more covered transactions, transfer pricing methods (and economic analysis to support such methods), critical assumptions and an APA term. The user fee for an APA increased to US$113,500 effective 1 January 2019. Special reduced rates apply to renewal APAs and certain small business APAs.

Time frame

How long does it typically take to obtain a unilateral and a bilateral APA?

The time required to obtain an APA can vary greatly depending on a number of factors, including the complexity of the transactions and the issues, the workload of the particular APMA staff members assigned to the case and, in bilateral cases, the treaty relationship between the IRS and the particular foreign tax authority assigned. According to statistics released in the IRS’s 2018 Announcement and Report Concerning Advance Pricing Agreements (APA Annual Report), the average completion time for APAs concluded in 2018 was 33.4 months for unilateral APAs and 45.6 months for bilateral APAs.


How many years can an APA cover prospectively? Are rollbacks available?

The typical term is five years, but longer terms are relatively common. According to the IRS’s 2018 APA Annual Report, about 34 per cent of APAs concluded in 2018 had a five-year term, 63 per cent had terms of six years or longer, and 17 per cent had terms of 10 years or longer. Rollbacks are available and generally encouraged.


What types of related-party transactions or issues can be covered by APAs?

APAs can cover the transfer pricing of related-party transactions of all sorts, including tangible and intangible property transfers, intercompany services, CSAs and financial transactions, including guarantees and the allocation of income of a financial institution engaged in the global trading of financial instruments. In addition to traditional transfer pricing issues, APAs can also cover certain other tax issues for which transfer pricing principles may be relevant and ancillary issues.


Is the APA programme independent from the tax authority’s examination function? Is it independent from the competent authority staff that handle other double tax cases?

The IRS APMA programme is operationally independent from the examination function, but since 2012 has been part of the LB&I Division with the same ultimate reporting lines as examination. Specifically, the Director of APMA reports to the LB&I Director of Treaty & Transfer Pricing Operations, who also oversees the IRS Transfer Pricing Practice that provides support to transfer pricing examinations.

Examination function personnel participate as team members in most APA negotiations. Their role in the process can vary depending on the nature of the issues involved, the prior examination history of the taxpayer and the desire of the particular examination team to be engaged in the process, but the examination function does not have a veto power over the APMA team.

Advantages and disadvantages

What are the key advantages and disadvantages to obtaining an APA with the tax authority?

There are many advantages to obtaining an APA. APAs provide certainty for transfer pricing issues that might otherwise give rise to long, protracted disputes with the IRS or foreign tax authorities. APAs can provide a particularly cost-effective solution by providing a high degree of certainty for multiple tax years. By providing such certainty, APAs have the added advantage of providing financial statement benefits. Another advantage of APAs is the availability of special rollback procedures, through which the agreed APA methodology can be applied to resolve open transfer pricing issues in prior open tax years, including issues already under examination. Moreover, bilateral and multilateral APAs resolve transfer pricing issues in both the United States and one or more foreign jurisdictions on a coordinated basis so that double tax is avoided.

Disadvantages of APAs include upfront costs, potential relatively long completion times, the possibility that the APA request may lead the IRS or foreign tax authority to uncover or raise issues that otherwise would not be raised during the context of an examination, and the inflexibility of executed APAs to adapt to business changes.