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April 15, 2021

US IRS releases FAQs on ICAP program for US multinational enterprises

The United States (US) Internal Revenue Service (IRS) recently released new frequently asked questions (FAQs) and answers on the International Compliance Assurance Program (ICAP). The FAQs are directed at US multinational enterprises (MNEs) that may be considering the program.


ICAP is a voluntary risk assessment and assurance program designed to facilitate open and cooperative multilateral engagement between large MNE groups and tax administrations in jurisdictions where the MNE groups have business activities.

Developed under the framework of the Organisation for Economic Co-operation and Development (OECD) Forum on Tax Administration (FTA) Large Business and International Programme, the first ICAP pilot was launched in January 2018, with the participation of eight FTA member jurisdictions: Australia, Canada, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States. In the second ICAP pilot program (ICAP 2.0), which commenced in March 2019, there were an additional 11 participating tax administrations: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Luxembourg, Norway, Poland and Russia. ICAP utilizes a group's Country-by-Country (CbC) reports, transfer pricing (TP) master file and local files, and other information.

To aid in its implementation, in February 2021, the FTA released a handbook for tax administrations and taxpayers potentially interested in participating in ICAP (see EY Global Tax Alert, OECD Forum on Tax Administration releases new handbook for International Compliance Assurance Programme (ICAP), dated 24 February 2021).

In March 2021, the IRS posted FAQs with additional information, noting that the FAQs are meant to provide helpful, informal guidance and are not official pronouncements of law or directives and cannot be used, cited or relied upon as such.

New FAQs clarify process

The 12 recently updated FAQs provide additional clarifying information for taxpayers who are entering or are considering ICAP. Among other topics, the FAQs provide information on how to apply, when to apply and who would benefit from the program.

A US MNE can apply for ICAP by submitting to the IRS a "selection documentation package" as described in the ICAP Handbook. The IRS suggests in the FAQs that US MNEs contact the IRS before submitting the application to learn about the process and the specific manner in which the package must be submitted.

There is no application or participation fee. The first three submission deadlines are 30 September 2021; 31 March 2022; and 30 September 2022.

The IRS said acceptance to ICAP is not guaranteed but based on the anticipated availability of IRS personnel and whether the IRS believes that the US MNE is suitable for ICAP. In determining suitability, the IRS may consider, among other factors: (i) the MNE group's footprint in the US; (ii) the type and materiality of the MNE group's covered transactions; (iii) whether the MNE group has a history of "transparent and cooperative engagement" with the IRS; and (iv) the MNE group's transfer pricing examination history. MNEs under an ongoing IRS examination are still eligible to participate, but it will be a "relevant factor" in the IRS's decision making (including the tax years and issues under examination).

For taxpayers in ICAP, the IRS said it intends to review all transfer pricing transactions in which the US is a counterparty. The IRS will not review transfer pricing transactions subject to pending or completed bilateral advance pricing agreements (APAs).

A potential compliance risk does not necessarily lead to an IRS examination. ICAP also includes an optional issue resolution process for the tax treatment of a covered transaction. In determining whether issue resolution is suitable, the IRS may consider: (i) the materiality of the potential adjustment; (ii) the complexity of the transaction; and (iii) agreement on the underlying facts of the transaction. The IRS said issue resolution may include an agreement between the parties to adjust the transfer price of a covered transaction or certain changes to the transfer pricing methodology.

The IRS ICAP risk assessment efforts are led by the Transfer Pricing Risk Assessment team. A risk assessment will be completed, and outcome letters will typically be issued, within 24 to 28 weeks following delivery of the main documentation package by the MNE.


Similar to the ICAP Handbook published on 18 February 2021, these FAQs are positioned to provide guidance as opposed to certainty. This differs from existing cross-border dispute resolution processes such as APAs, Mutual Agreement Procedures (MAPs) and arbitration, all of which are intended to eliminate rather than simply lessen risk. The ability, however, for MNEs to receive outcome letters within 24 to 28 weeks following delivery of their main documentation package and a single round of risk assessment/issue resolution by the covered tax authorities, which is generally less information than required during an APA, tax audit, or MAP, may be viewed by some MNEs as being a significant benefit of the ICAP process.

By way of comparison, the IRS's APA statistics for 2020 indicate that the median TP APA case took approximately 32.7 months to resolve.1 Moreover, the fact that an ICAP risk assessment can involve an effectively unlimited number of tax authorities from within the FTA network means it is one of the most multilateral tools available to MNEs — allowing for comfort in numerous jurisdictions in a concurrent and collaborative way. Finally, participants in the earlier pilots have indicated that the comfort they received had a wider impact on their controversy risk than just the participating jurisdictions.

There is also the continuing opportunity for ICAP to complement other existing methods of dispute resolution. For example, during subsequent domestic tax audits, both by covered tax authorities and other jurisdictions, MNEs may be able to leverage existing risk assessments and document collation completed through the ICAP process to strengthen their position and shorten timeframes. Further, MNEs may use ICAP to identify suitable covered transactions for bilateral and multilateral APAs or MAP applications or to supplement existing or future APA or MAP negotiations.2


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transactions Services, Transfer Pricing, Washington, DC

Ernst & Young LLP (United States), International Tax and Transactions Services, Transfer Pricing, New York



  1. John C. Hughes, Announcement and Report Concerning Advance Pricing Agreements (March 23, 2021).
  2. See EY Global Tax Alerts, OECD releases 10th batch of peer review reports on BEPS Action 14 related to improving dispute resolution, dated 17 February 2021 and OECD holds public consultation on review of minimum standard on dispute resolution under BEPS Action 14, dated 3 February 2021.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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