IRS and OECD Separately Address Transfer Pricing Issues

On March 28, the IRS announced a reorganization of its advance pricing agreement (APA), mutual agreement, and competent authority programs into one new program (IR-2012-38). All three programs dealt with transfer pricing rules, which determine how international transactions within a multinational company must be priced to ensure each country receives its fair share of tax.

Before Feb. 26, 2012, the APA program, which handled transfer pricing agreements, was in a separate IRS division from the mutual agreement and competent authority programs. The mutual agreement program dealt with transfer pricing agreements between taxpayers and the United States and other governments. The APA program and the competent authority functions (including the mutual agreement procedures and determinations of permanent establishment status) that relate to transfer pricing and other similar issues are now combined into a new Advance Pricing and Mutual Agreement (APMA) program. Responsibility for competent authority requests that do not involve allocation issues is handled by the IRS’s Large Business & International Treaty Assistance and Interpretation team.

To implement this realignment, the IRS intends to revise its existing procedures for requesting APAs and competent authority assistance. Until then, the Service says taxpayers can rely on Rev. Proc. 2006-9 (Allocation of Income and Deductions Among Taxpayers), as modified by Rev. Proc. 2008-31, and Rev. Proc. 2006-54 (Procedures for Requesting Competent Authority Assistance Under Tax Treaties), with the following changes:

• References to APA refer to APMA;
• The user fee in Rev. Proc. 2006-54 is $27,500 (instead of $15,000); and
• Taxpayers should send requests to the new address listed in IR-2012-38.

OECD Global Forum on Transfer Pricing

In another transfer-pricing development, tax officials from 90 countries, meeting at the Organisation for Economic Co-operation and Development’s first Global Forum on Transfer Pricing, agreed that there is a need to simplify and strengthen global transfer pricing rules.

During the next year, the Global Forum plans to perform a transfer pricing risk assessment and establish good practices for governments to use when they assess transfer pricing risk.

Attendees also agreed on a need to strengthen guidelines on the treatment of intangibles and improve dispute resolution. In a prepared statement, Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy Administration, said these improvements would provide benefits for “developed and developing economies, as well as for businesses.”