January 9, 2023
US Acting IRS Commissioner affirms continued participation in ICAP
Speaking at the Institute on Current Issues in International Taxation on 15 December 2022, Douglas O'Donnell, the Acting Commissioner of the Internal Revenue Service (IRS), stated that, while the International Compliance Assurance Program (ICAP) could be improved, the IRS will continue to participate in the program.
ICAP was created by the Organisation for Economic Co-operation and Development (OECD) to provide taxpayers greater tax certainty on international tax issues. Taxpayers may voluntarily enter ICAP, which facilitates co-operative engagements between multinationals and tax authorities in their local jurisdictions. ICAP allows multinationals to present their tax position to several tax administrations simultaneously in a more cooperative environment than a typical audit. Although a taxpayer cannot receive legal certainty that their tax positions will be accepted through ICAP, the program can reduce the likelihood the taxpayer will be audited and allows the taxpayer to develop relationships with multiple tax administrations. The IRS has continuously participated in ICAP since 2018, the year it was rolled out as a pilot program. Currently, 21 additional tax administrations participate in ICAP.
Continued IRS participation in ICAP
Speaking about ICAP, O'Donnell stated that "[b]uilding the process out was complicated" due, at least in part, to tax administrations holding differing views on the risks associated with a transaction. ICAP has also been expensive to administer, he said. However, the COVID-19 pandemic has forced tax administrations to change how they operate, streamlining and accelerating the risk assessment process, he added.
For the IRS, one of the benefits of ICAP has been the opportunity to speak with business leaders who operate outside of the tax world about what their companies do, according to O'Donnell. While noting that ICAP still needs a lot of work, O'Donnell affirmed the IRS's continued participation in the program and hoped to see even more taxpayers participate.
ICAP is likely to continue to be modified in the future as the OECD, the IRS and other tax administrations gain more experience with the program. While ICAP may not be right for every multinational taxpayer, it can provide greater and cost-effective tax certainty, particularly if the IRS begins to limit, as has been suggested, the number and types of Advance Pricing Agreement applications to be accepted in the future.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), National Tax Department, International Tax and Transaction Services, Transfer Pricing