New IRS Rules: Clarity in Transfer Pricing

The United States Internal Revenue Service (IRS) has introduced updated methods for processing advance pricing agreement (APA) requests, increasing the ability of taxpayers to gain clarity on transfer pricing (TP) issues.

As expected, on April 25, the IRS department responsible for working with large companies and international organizations published a memorandum outlining the new procedures for reviewing APA requests and preliminary memorandums.

The updated procedures include collaboration between the APMA Program and the IRS Transfer Pricing Office. The APMA, which analyzes APA requests and competent authorities, will work closely with the transfer pricing experts at the IRS.

In support of transparency, IRS leadership emphasizes that these consultations are not intended to reduce the volume of APA requests submitted by APMA. On the contrary, their aim is to ensure that each case is handled in the best possible way to ensure tax clarity. This may include exploring alternative methods such as the International Compliance Assessment Program (ICAP) or joint audits.

Another significant change was the strengthening of the document pre-review process based on current APA procedures. Taxpayers can now request a pre-assessment of their proposed APA to provide the IRS with useful information about its suitability for their particular situation. In order to receive such an assessment, taxpayers must submit a preliminary memorandum, which may increase the processing time by several weeks or more, depending on additional information requirements.

These new procedures reinforce the importance of pre-filing, and taxpayers may choose to file pre-filing, even on their own initiative, seeking an IRS assessment before applying for an APA. However, the ability of the IRS to request additional information during pre-screening may result in an increase in request processing time in some cases.

While the practical implications of these new procedures remain to be assessed, the positive feedback from IRS officials indicates a desire to effectively address taxpayer requests, rather than cut back on the APA program. This is part of a broad reorganization of the APA program in the United States, which is looking at changes to the basic APA income procedures and related income procedures in cases involving mutual agreements.