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February 16, 2021
US IRS's Advance Pricing and Mutual Agreement Program continues case closures despite COVID restrictions
The United States (US) Internal Revenue Service’s (IRS) program to resolve transfer pricing disputes (Advance Pricing and Mutual Agreement Program (APMA)) has adapted well to the virtual environment resulting from the COVID-19 pandemic, according to an article in Tax Notes Today.1
Speaking at a Tax Council Policy Institute conference, Douglas O'Donnell, Commissioner of the IRS Large Business and International Division, said case closures have been "surprisingly robust" despite the fact the work has become completely virtual.
In May 2020, the IRS announced modifications for filing advance pricing agreement (APA) and mutual agreement procedure (MAP) requests to allow for electronic filing and digital signatures. In the same announcement, the IRS also addressed questions about how the current economic environment affects the handling of pending and executed APAs by the APMA (see EY Global Tax Alert, US IRS announces modifications for filing APA and MAP requests, addresses questions on pending and executed APAs, dated 15 May 2020).
O'Donnell said "the pandemic has brought various tax administrations around the world closer together," adding "this alignment of interests in enforcement and compliance was clearest when addressing large multinational entities and high-wealth individuals with cross-border activities," according to the article.
In addition, O'Donnell noted the work being done by the Joint International Taskforce on Shared Intelligence and Collaboration, which keeps track of global trends and enables collaboration and sharing of resources and expertise, and the International Compliance Assurance Program (ICAP), which focuses on transfer pricing and permanent establishment issues. O'Donnell said the IRS is trying to expand the number of countries participating in ICAP and include jurisdictions in Asia, Africa and South America.
According to the article, O'Donnell said "[t]he idea is to get to a place where we view the taxpayers' transactions across the board as low risk and are able to issue them a letter that says the same." While some taxpayers worry that the letter is nonbinding, O'Donnell noted, it is still "a clear statement of intent on the part of the tax administrators that we are not going to do additional work on a particular issue."
Consistent with O'Donnell's remarks, EY's National Tax Department transfer pricing practice has observed an increase in MAP and APA case completions due to APMA's technological modifications and increased collaboration amongst taxing authorities. APAs and MAPs are critical tax dispute resolution tools for taxpayers to consider as tax controversies will likely increase due to tax authorities' responses to the global pandemic.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services – Transfer Pricing Controversy, Washington, DC