US Inbound: New APA report

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

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

US Inbound: New APA report

fuller.jpg

forst.jpg

Jim Fuller


David Forst

The IRS issued its annual advance pricing agreement (APA) report covering calendar year 2012. Interestingly, 75% of the APAs were inbound, that is, they involved foreign parent companies and US subsidiaries. The majority of all bilateral APAs were with Japan. There was a substantial increase in the number of APAs executed during 2012, which is a good sign. It likely was due to the Advance Pricing and Mutual Agreement (APMA) office's restructuring and, likely more significantly, to the substantial increase in the APA staff. This suggests the APMA folks are digging into their backlog, which is substantial.

However, processing time to get an APA in 2012 increased over 2011. While the APA report states that processing time actually decreased, this appears not to be the case. The average processing time went up from 40.7 months to 41.7 months and the median processing time went up from 36.5 months to 39.8 months. (Even more troubling, 2011 represented an increase in processing time over 2010.)

The decrease in processing time stated in the APA report summary compares 2011 average processing time to 2012 median processing time, which would appear to be a comparison of statistics that are not comparable.

Worse, the processing time for a new APA increased dramatically from 39.5 months median to 50.6 months median. This significant increase in processing time is not a good sign.

The number of APA requests filed in 2012 is consistent with the five-year average of APAs filed during 2008-2012. There was an increase in APA requests filed over the immediately preceding year, but this comparison would appear to be misleading. Far fewer applications were filed in 2011 than were filed in the three years before.

Fifty-three percent of the bilateral APAs finalised or renewed during 2012 were with Japan. This concentration of bilateral APAs with Japan dwarfs the second and third largest countries in terms of finalised bilateral APAs, which were with Canada, 16% and the UK, 10%. The total for the three countries alone accounted for nearly 80% of all US bilateral APAs during 2012.

A substantial number of the APAs (75%) involved the comparable profits method (CPM) or the transactional net margin method (TNMM). TNMM may have been involved because so many APAs were concluded with Japan. CPM, however, has always played an important role in the US APA process. In 2011, for example, CPM was involved in the great majority of APAs, both those involving tangible and intangible property and those involving services.

Jim Fuller (jpfuller@fenwick.com)

Tel: +1 650 335 7205

David Forst (dforst@fenwick.com)

Tel: +1 650 335 7274

Fenwick & West

Website: www.fenwick.com

more across site & shared bottom lb ros

More from across our site

Pillar two may be raising less than expected, but professor René Matteotti says the regime is still changing multinational tax behaviour
Multinationals importing goods into Brazil may need to align TP files and customs documentation more closely as authorities gain new tools to challenge related-party transactions
The private equity-backed deal hands Grant Thornton immediate and impressive US scale, but World Tax data suggests the firm still has work to do to gain recognition
From Instagram content to £100m transactions, the founder of Thomas & Co International discusses building a modern tax and accounting firm for business founders
Growing GAAR scrutiny is driving taxpayers to look beyond legal form and demonstrate the commercial rationale underpinning tax-efficient structures
Pillar two has been clients’ ‘biggest headache’ but also a driver of growth for MHA, which believes it has the edge over its big four rivals
Public country-by-country reporting is exposing multinational tax data to investors, journalists and competitors, creating fresh risks for businesses
Pillar two compliance is creating unprecedented data demands for multinational tax departments, making closer collaboration with FP&A teams essential for accurate reporting and audit readiness
Among the arrivals is Andrew Howell, who leaves scandal-hit PwC Australia after representing PepsiCo in a high-profile TP dispute
ITR's podcast examines whether the big four have overarching cultural issues and assesses the competitive threat of technology-backed transfer pricing firms
Gift this article