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US Outbound: IRS issues APA and competent authority statistics for 2015

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Sean Foley

Cameron Taheri

The IRS recently released its 2015 statistics for advance pricing agreements (APAs) and mutual agreement procedure (MAP) results for the Advance Pricing and Mutual Agreement ("APMA") Program.

APA statistics

On March 31 2016, the IRS APMA Program issued its annual report on APA statistics for 2015 in Announcement 2016-12. The highlights include:

  • The number of executed APAs in 2015 was 110 – compared to 101 in 2014, 145 in 2013, and 140 in 2012.

  • The median completion time for unilateral and bilateral APAs was 31.9 months for new APAs and renewed APAs combined, which is a slight decrease from the previous year.

  • APAs with Japan (46%) and Canada (23%) comprised 69% of all bilateral APAs executed in 2015, which is consistent with previous years.

  • For those APAs executed in 2015, the Comparable Profits Method/Transactional Net Margin Method was used in 79% of APAs involving tangible and intangible property and 85% of APAs involving services.

  • The number of APA requests increased from 108 in 2014 to 183 requests in 2015.

  • The number of executed APAs (110) did not surpass the number of applications filed (183) during 2015.

The authors' impressions of the APA statistics include:

  1. that the APMA is resolving more APAs, in particular given an improved negotiating relationship between the US and Japan;

  2. that the increased number of APA filings may be due to the focus on base erosion and profit shifting (BEPS) actions and IRS guidance issued in August 2015 as Revenue Procedure 2015-40 and Revenue Procedure 2015-41; and

  3. that the increasing inventory of pending APAs may be an area of some concern.

MAP statistics

On April 27 2016, the IRS released the Large Business & International Division Competent Authority Statistics for 2015, which contains the results for APMA's transfer pricing MAP cases. The highlights for transfer pricing include:

  • The number of cases resolved in 2015 was 193, which reflects a significant increase in the number of cases resolved from 2014 (133).

  • The number of cases received was 237. Foreign-initiated adjustments comprised 79% of the total, while the remaining 21% were US-initiated adjustments.

  • The number of US-initiated adjustments decreased from 86 in 2014 to 50 in 2015.

  • Of the cases resolved, full double tax relief was achieved for 85.6% of the adjustment amounts (figures represent a percentage of the total dollar adjustments) and partial elimination of double tax was achieved for another 4.8% of the adjustment amounts.

  • Only 1.6% of the adjustment amounts for 2015 resulted in double tax. The remaining 8% of adjustment amounts were in cases withdrawn by the taxpayer.

  • The average time to process cases increased from 21.4 months in 2014 to 32.1 months in 2015.

The authors' impressions of the MAP statistics include:

  1. the increase in cases resolved, foreign-initiated adjustments, and case processing time reflects the resolution of 93 Indian MAP cases that had been outstanding for a long time;

  2. the percentage of foreign-initiated adjustments will likely continue to be significant due to BEPS; and

  3. the 2015 statistics demonstrate that the MAP process is working to eliminate double tax.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.

Sean Foley (sffoley@kpmg.com) and Cameron Taheri (ctaheri@kpmg.com), Washington, DC

KPMG

Tel: +1 202 533 5588

Website: www.us.kpmg.com

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