May 15, 2018 IRS releases new template for APA agreements The Internal Revenue Service (IRS) released on May 11, 2018, a revised mandatory template for Advance Pricing Agreements (APAs) to be included in all taxpayer APA requests. Background and detailed discussion An APA is an agreement between the IRS and a taxpayer under which the IRS agrees not to seek a transfer pricing adjustment under Section 482 for one or more specific covered transaction(s) if the taxpayer files its tax return for a covered year based on an agreed transfer pricing method(s) (TPM)). The APA process is a voluntary program designed to resolve actual or potential transfer pricing disputes in a principled, cooperative manner, as an alternative to the traditional examination process. Revenue Procedure 2015-41 provides guidance on the process of requesting and obtaining APAs from the Advance Pricing and Mutual Agreement program (APMA). Of particular importance for this Alert is Section 1 ("Content of complete APA request"), Sub-section .03 ("Exhibits") of the Appendix to Revenue Procedure 2015-41, which describes the order and content of the 22 exhibits to be included in every APA request. The new template released by the IRS is the basis for the draft APA agreement that Taxpayers must file as Exhibit 15 of their APA request. Revenue Procedure 2015-41 describes the content of Exhibit 15 as follows: "Proposed draft APA: Provide a proposed draft APA in a form substantially similar to APMA's current model APA (as may be posted on the APMA website or otherwise available by contacting APMA), together with a "redline" version of the same showing the differences between the model APA and the proposed draft APA." It is important to distinguish, for those not familiar with APA procedures, between an APA request and the actual APA. The former is prepared and submitted by the taxpayer under the aforementioned Revenue Procedure and includes the taxpayer's understanding of the facts, the proposed covered transaction(s) and the request to agree with the corresponding Competent Authority on the application of a transfer pricing methodology applicable prospectively (usually five years). The latter is the agreement signed at the end of the APA process between the IRS and the taxpayer memorializing the agreed transfer pricing methodology. Exhibit 15 of all APA requests must include a taxpayer-prepared draft of the future APA agreement, but the taxpayer must use the most current template available at the time of the submission. The recent template released by the IRS constitutes the most current version of the template for Exhibit 15. The IRS also indicated that "APMA envisions periodically reviewing the template and making further revisions as it gains experience in the template's use." The IRS has requested comments on the template. Comments may be e-mailed to lbi.ttpo.apma.feedback@irs.gov (APMA Mailbox) with the subject line "APA Template Comments". Taxpayers can also request a Microsoft Word file of the template and the General Instructions, by e-mailing the APMA Mailbox with the subject line "APA Template Request." Special considerations Taxpayers that have already prepared an APA request using the old version of the APA template may file their request using that version. Additionally, they should submit a revised draft APA with the current version within the following 60 days, together with any required justification of options selected (see the template's General Instructions) that were not included in the request. ———————————————
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