IRS Releases Revenue Procedure 2015-41 - Updated Procedures for Advance Pricing AgreementsSeptember 01, 2015
Andrew T. Bostian
An Advance Pricing Agreement (“APA”) allows the taxpayers to resolve transfer pricing issues with the IRS in a cooperative manner. The process lessens the burden of compliance by giving taxpayers greater certainty regarding covered issues and resolving issues in advance.
Revenue Procedure 2015-41 (released August 12, 2015) updates these procedures to improve clarity, readability and organization of the APA program. Companies that are currently in the process of filing an APA, or renewing an APA, may still do so under the prior procedures (Rev. Proc. 2006-9), but only if they do so by December 29 of this year.
There are certain nuances of Revenue Procedure 2015-41 that caught our attention:
The updated procedures clarify that the IRS may require the taxpayer to expand the proposed scope of its APA request to also include “interrelated matters.” For example, Company A provides services to affiliated Company B, and the services provided require the use of intangible property that was previously transferred to Company A. The IRS will likely seek to ensure that the services are valued in a consistent manner with the valuation done in connection with the initial transfer of the related intangible property.
Preference for Bilateral and Multilateral APAs
In order to minimize taxpayer and governmental uncertainty and administrative costs, the IRS expresses a preference for bilateral and multilateral APAs over a unilateral APA. A taxpayer that prefers a unilateral APA must file a pre-filing submission that explains why a unilateral APA is appropriate to cover a specific issue. The IRS will then determine whether or not it will accept a unilateral APA request.
Mandatory Pre-Filing Memoranda
Taxpayers may request pre-filing guidance from the IRS in order to make the process more effective and efficient. Pre-filing submissions are mandatory in certain circumstances, including:
- A request to submit an abbreviated APA;
- A request for a unilateral APA; or
- The covered issue(s) involves (i) the license or other transfer of intangibles under an intangible development arrangement; (ii) a global trading arrangement; (iii) a business restructuring; or (iv) unincorporated branches, pass-through entities hybrid entities, or entities disregarded for U.S. tax purposes.
Abbreviated APA Requests
A taxpayer may file an abbreviated APA request after obtaining permission from the IRS. An abbreviated request may be granted for renewals in which the facts and circumstances, economic conditions and other relevant factors are largely the same as the existing APA. Other circumstances in which an abbreviated APA request might be appropriate include 1) the expansion of a competent authority request and 2) qualified small cases.
Required Content of APA Request
The updated procedures require more information up-front than the prior procedures, which allows the IRS to make efficient decisions with respect to the covered issues. The APA request must first include a request letter, which is then followed by exhibits. The appendix to the updated procedure provides the full detail of what is to be covered.
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Andrew Bostian has 13 years of experience in developing strategies to minimize exposure to transfer pricing adjustments and tax penalties and providing the economic framework for Advance Pricing Agreements.BlumShapiro is the largest regional business advisory firm based in New England providing accounting, tax and business consulting services throughout Connecticut, Massachusetts and Rhode Island. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation, and financial staffing. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.