International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Outbound: New updates to CAP focus on transfer pricing issue resolution

Sponsored by

sponsored-firms-kpmg.png

On August 27 2018, the Internal Revenue Service (IRS) announced changes to the compliance assurance process (CAP) for future years. CAP is an IRS programme that allows select taxpayers to participate in advance resolution of issues with IRS personnel prior to filing their returns.

The programme began with 17 participants in 2005, and has grown to 169 in 2018.

The IRS announced in 2016 that new participants would not be accepted into the CAP, leaving the future of the programme uncertain. The 2018 news release, however, indicated that the IRS intends to maintain and expand the CAP. Doug O'Donnell, commissioner of the IRS's large business and international division, stated that "after extensive review, we believe this programme continues to provide benefit for taxpayers and tax administration". While applications for 2019 are restricted to current CAP taxpayers, the IRS announced that the programme would reopen to new participants in the future.

The changes, which are effective for the 2019 application season, require taxpayers applying for the CAP to provide the IRS with a preliminary list of material issues and, if applicable, specified transfer pricing and research credit information. Additionally, under the new procedures, taxpayers may be required to resolve certain transfer pricing issues using an advance pricing agreement (APA). Generally, the CAP procedures move quickly, since their duration is limited by the return filing date, and the recent news release announces a 90-day goal for issue resolution in the CAP. The requirement that some issues be resolved through APAs rather than the CAP seems to reflect the IRS's understanding that complex transfer pricing issues may not be suited to the timeframe and procedures of the CAP, and instead require more deliberate consideration by subject matter experts in the APA process.

Importantly, the requirement that APAs be used for certain issues also suggests that the IRS does not believe difficult transfer pricing issues should preclude taxpayers from participating in the CAP. Rather, it seems to contemplate a coordinated approach under which some transfer pricing issues may be severed from the normal CAP and addressed in a parallel, albeit longer, APA procedure. This should help the IRS reach its 90-day issue resolution goal for the CAP, while also opening the door to bilateral resolution of significant transfer pricing issues through the APA process. Since bilateral resolutions are not available in the CAP, this is a significant benefit to taxpayers.

more across site & bottom lb ros

More from across our site

Shareholders are set to vote on whether the asset management firm will adopt public CbCR, amid claims of tax avoidance.
US lawmakers averted a default on debt by approving the Fiscal Responsibility Act, but this deal may consolidate the Biden tax reforms rather than undermine them.
In a letter to the Australian Senate, the firm has provided the names of all 67 staff who received confidential emails but has not released them publicly.
David Pickstone and Anastasia Nourescu of Stewarts review the facts and implications of Ørsted’s appeal at the Upper Tribunal.
The Internal Revenue Service will lose the funding as part of the US debt limit deal, while Amazon UK reaps the benefits of the 130% ‘super-deduction’.
The European Commission wanted to make an example of US companies like Apple, but its crusade against ‘sweetheart’ tax rulings may be derailed at the CJEU.
The OECD has announced that a TP training programme is about to conclude in West Africa, a region that has been plagued by mispricing activities for a number of years.
Richard Murphy and Andrew Baker make the case for tax transparency as a public good and how key principles should lead to a better tax system.
‘Go on leave, effective immediately’, PwC has told nine partners in the latest development in the firm’s ongoing tax scandal.
The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.