The annual report of APA statistics by the advance pricing and mutual agreement programme (APMA) is a sort of bellwether for the US APA programme and for transfer pricing (TP) dispute prevention more generally. 2018’s statistics revealed an unprecedented surge in applications, driven in part by US tax reform and in part by an increase in the cost of APAs. 2019, by contrast, was a respectable but largely undistinguished year, reflecting good progress with cases closed without breaking any records.
The 2020 statistics are also, by and large, unremarkable – which, coming in the midst of a remarkably chaotic year, is a milestone accomplishment. In an article on last year’s statistics, we speculated that the COVID-19 pandemic might deter interested taxpayers from seeking APAs, and that pandemic-related disruptions could lead to APA cancellations in some cases. Neither possibility materialised in any significant way which is a testament to the APMA, its treaty partners, and APA taxpayers.
2020 APA statistics
Both 2019 and 2020 saw 121 complete APA applications filed with the APMA. While some taxpayers may have been deterred from pursuing APAs because of pressing operational or other challenges, others may have embraced the APA programme's ability to provide certainty in the midst of an uncertain environment.
Significantly, no APAs were cancelled during 2020. Cancellations occur when a critical assumption is not met, unless the parties are able to agree on a revision to the APA. While COVID-19 likely triggered some critical assumption failures, the lack of cancellations speaks to the willingness of competent authorities to work through pandemic-related issues with taxpayers.
More significant for the long-term viability of APAs is the fact that APAs executed increased from 120 to 127, of which 105 were bilateral and three were multilateral. COVID-19 forced tax authorities around the world into unprecedented work-from-home models. The fact that APA execution rates improved in the midst of this chaos highlights how successful that transition has been for APMA and many of its treaty partners.
2020 also saw improvements in certain timing metrics. Overall processing times were down, driven by substantially improved resolution times for renewal APAs. However, new unilateral APAs took longer, and the average resolution time for new bilateral APAs rose even as the median dropped, illustrating how sensitive these statistics can be to the results of a relatively small number of cases.
Thoughts for the future
Despite its challenges, COVID-19 seems likely to leave a highly positive legacy for TP dispute prevention. Tax authorities were forced to adopt videoconferencing technology in lieu of in-person meetings, and this technology now allows competent authorities to have meaningful interactions more frequently and with significantly less expense. While in-person meetings will likely resume to some degree, videoconferencing should help competent authorities to continue to work efficiently and effectively.
The high level of APA filings during 2020 is attributable in no small part to APMA’s flexibility in waiving paper submission and physical signature requirements. In an environment where taxpayer personnel and practitioners were frequently unable to access the office infrastructure needed to compile and ship an (inevitably voluminous) APA request, this adaptation has been crucial, with firms now submitting APA applications and annual reports via dedicated secure file transfer protocol (SFTP) sites.
This is a far cry from the days when the now-superseded Rev. Proc. 2006-9 required the submission of APA annual reports in quintuplicate, and it is hoped that APMA will embrace this useful modernisation even after the COVID-19 pandemic has receded.
Mark Martin
Principal, KPMG
Thomas Bettge
Manager, KPMG
