The IRS has finalized a new template that taxpayers must use when requesting an advance pricing agreement (APA) under Rev. Proc. 2015-41. Like the proposed version issued in September 2017, the new template includes a filled-in and annotated example of how the template might be edited by taxpayers to produce an initial draft APA. The IRS’s Advance Pricing and Mutual Agreement Program (APMA) will be reviewing the template periodically and making revisions as it gains experience and additional feedback is received.
Taxpayers may request Microsoft Word files of the template, the example, and a “redline” comparison of the current version of the template with the proposed version by sending an email to the APMA Mailbox with the subject line “APA Template Request.” The current template continues to use an options-based format. To provide further flexibility, the APMA clarified how the template might be edited by taxpayers. Some custom drafting may still be required even where it is not specifically indicated in the template (for example, for custom critical assumptions). APMA is also considering feedback on the template aimed at making it more readable and less confusing, particularly when multiple options are available.
The new template uses the term “tested party” in a more expansive sense than is used in either Treasury regulations or the transfer pricing guidelines issued by the Organisation for Economic Co-operation and Development (OECD). In order to avoid confusion, the template repeats in section 4 of Appendix A the explanation of how “tested party” is used. APMA has also clarified certain points related to covered issues and added additional provisions in Appendix A. Specifically, it added two optional provisions regarding periodic adjustments and a provision that reflects the IRS position that an intercompany payable established under the principles of Rev. Proc. 99-32 should be treated as indebtedness for all U.S. federal tax purposes, including for purposes of Section 956.
APMA removed the proposed section 7 of Appendix A, Effect of Certain Adjustments by Tax Authorities and Resulting Competent Authority Proceedings. This section addressed whether a covered method should be re-applied to take into account certain adjustments between an APA-covered entity and a non-APA-covered entity, and any resulting competent authority resolution that would affect the testing of financial results under the covered method. APMA believes that this question needs further study and invited comments on the frequency with which this question might arise, the need for provisions to address this question, and what provisions or choice of provisions (including those in the removed section of the proposed template) might be appropriate.
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