March 31 2022

IRS Releases 2021 Report on Advance Transfer Pricing Agreements

Source: IBFD Tax Research Platform News

The US Internal Revenue Service (IRS) has released its annual report for 2021 on advance pricing agreements (APAs) and the advance pricing and mutual agreement (APMA) program for transfer pricing transactions.

The IRS issued the report in the form of IRS Announcement 2022-7, dated 22 March 2022.

Part I of the report summarizes the structure, composition, and operation of the APMA program. Part I of the report notes that, on 31 August 2015, the IRS issued revised procedures for requesting competent authority assistance and revised procedures for APA applications.

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, 124 APAs were executed in 2021, comprised of 25 unilateral APAs, 98 bilateral APAs and 1 multilateral APA. In addition, 78 APAs were renewed in 2021, consisting of 19 unilateral APAs, 59 bilateral APAs and 0 multilateral APA. There were 145 new APA applications filed in 2021, consisting of 16 unilateral applications, 121 bilateral applications and 8 multilateral applications. The number of APA requests pending at the end of 2021 was 185, including both new requests and requests for renewals. Part II also includes the statistical results of the APMA program by reference to countries and industry sectors.

Part III of the report provides general descriptions of various elements of the APAs executed in 2021, 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 2021.

With regard to the length of time needed to complete an APA request during 2021, Part III of the report indicates an average time of 39.2 months and a median time of 35.1 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 the texts of two Model APAs as Appendix 1 and Appendix 2.

The report is set to appear in the Internal Revenue Bulletin (IRB) 2022-15, dated 11 April 2022.

Note: The APMA program, as the successor to the APA program, continues the procedure whereby taxpayers and the IRS can enter into 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.