17 July 2025 IRS releases 2025 template for Advance Pricing Agreements
The IRS has released the 2025 Model Advance Pricing Agreement (APA) template that taxpayers must include in all APA requests as Exhibit 15. While there are no material changes from the 2024 version, some of the minor changes could be helpful to taxpayers. Taxpayers must request an APA through the Advance Pricing and Mutual Agreement program (APMA). As part of this process, the taxpayer must include a draft APA based on the most recent template. APMA provides the template as part of the APA process or taxpayers can request it from APMA. The final APA is a binding contract between the IRS and the taxpayer. Including the APA template as a part of the APA request gives the taxpayer an opportunity to lay out proposed terms of the agreement with the IRS. When filling out the APA template, the taxpayer must include (1) a description of the covered transactions, (2) the transfer pricing methods that will be used to determine the arm's-length price for the covered transactions, (3) how the transfer pricing methods will be applied to the covered transactions, (4) the period for which the APA is valid,(5) assumptions that are critical to the validity of the APA, and (6) the required documentation. The changes to Section 5.c, which covers compliance with the APA, now closely align with the Rev. Proc. 2015-41 section on examination. This section used to say, “For each APA Year, if Taxpayer complies with the terms and conditions of this APA, then the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate between Taxpayer and Foreign Participant[s] with respect to the Covered Transactions.” The IRS will not reconsider any Covered Method but will instead limit any examination of Taxpayer’s treatment of Covered Issues in their U.S. Return for any APA Year to, and may require that Taxpayer establish, the following: (i) Taxpayer’s compliance with the terms and conditions of this APA, (ii) the accuracy of material representations included in APA annual reports submitted pursuant to this APA, and (iii) the correctness of the supporting data and computations used to apply the Covered Method. The IRS may audit and propose adjustments to Taxpayer’s results as determined under this APA’s Covered Method without affecting the APA’s validity or applicability. Taxpayer may agree with the proposed adjustments in the same manner as any other adjustment, in which case the IRS will assess any resulting additional tax or refund any resulting overpayment of tax accordingly. If it does not agree with the proposed adjustment, Taxpayer may contest it through available administrative and judicial procedures. Taxpayer must include the audit adjustments as finally determined for the purpose of applying the Covered Method and must then make any resulting APA primary adjustments. Another change is to Section 5.a on reporting of adjustments, which now explicitly includes an example where the taxpayer can make APA adjustments with Exam in a current audit rather than filing an amended return. This is not a new possibility, but it is helpful to see that efficiency mentioned. Section 7, which deals with disclosures, no longer states that the APA and the APA request are return information. In 1999, Congress amended IRC Section 6103, which defines “return information,” to explicitly include advance pricing agreements.1 Consequently, IRC Section 6103(b)(2)(C) explicitly includes any advance pricing agreement in that definition by including the following: . . . any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to such agreement or any application for an advance pricing agreement . . . Instead, the new template states that they are “subject to various sections of the I.R.C.” and treaty obligations. This modification was likely introduced to simplify the APA template and may be APMA’s way of recognizing that, in addition to return information, the APA and the APA request may also be considered “tax convention information” under IRC Section 6105(c)(1). There are other minor changes, such as making the document more user friendly by highlighting instructions or areas that need to be filed out by the taxpayer, financial statements no longer needing to be prepared in US GAAP and in US dollars, and acceptance of the applicable generally accepting accounting standards rather than US GAAP.
Document ID: 2025-1506 | ||||||||
