Bulletin No. 2023–16

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Bulletin No. 2023–16

April 17, 2023

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Announcement 2023-10, page 663.

This Announcement is issued pursuant to § 521(b) of

Pub. L. 106-170, the Ticket to Work and Work Incentives

Improvement Act of 1999, which requires the Secretary

of the Treasury to report annually to the public concerning

advance pricing agreements (APAs) and the Advance Pricing

and Mutual Agreement Program (APMA Program), formerly

known as the Advance Pricing Agreement Program (APA Program). This twenty-fourth report describes the experience,

structure, and activities of the APMA Program during calendar year 2022.

EXCISE TAX

REG-105954-22, page 713.

This notice of proposed rulemaking provides guidance

related to sections 4661, 4662, 4671, and 4672 of the

Internal Revenue Code, collectively referred to as the

Superfund chemical taxes. Section 4661(a) imposes an

excise tax on the sale or use of “taxable chemicals” by

manufacturers, producers, or importers. Section 4671(a)

imposes an excise tax on the sale or use of “taxable substances” by importers. The Superfund chemical taxes

previously expired on December 31, 1995, but were reinstated with certain modifications, effective July 1, 2022,

by section 80201 of the Infrastructure Investment and

Finding Lists begin on page ii.

Jobs Act (IIJA), Public Law 117-58, 135 Stat. 429 (November 15, 2021).

INCOME TAX

Notice 2023-31, page 661.

This Notice announces that when proposed regulations

under section 903 (REG-112096-22) are finalized, the Treasury Department and the IRS intend to extend the transition

period for the single-country exception’s documentation

requirement from May 17, 2023 to 180 days after the

final regulations are filed with the Federal Register. The single-country exception provides relief from the source-based

attribution requirement under section 903 for foreign withholding taxes on royalties paid for the use of intellectual

property within the withholding jurisdiction.

REG-120080-22, page 746.

This document contains proposed regulations regarding the

credit for clean vehicles under section 30D of the Internal Revenue Code (Code). These proposed regulations will

affect persons seeking to claim the § 30D credit and qualified manufacturers of the clean vehicles.

Rev. Rul. 2023-2, page 658.

Revenue Ruling 2023-2 confirms that the basis adjustment

under section 1014 generally does not apply to the assets

of an irrevocable grantor trust not included in the deceased

grantor’s gross estate for Federal estate tax purposes.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all

substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede,

revoke, modify, or amend any of those previously published

in the Bulletin. All published rulings apply retroactively unless

otherwise indicated. Procedures relating solely to matters

of internal management are not published; however, statements of internal practices and procedures that affect the

rights and duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

April 17, 2023

Bulletin No. 2023–16

Part I

Section 671.—Trust

Income, Deductions, and

Credits Attributable to

Grantors and Others as

Substantial Owners; §

1014.—Basis of Property

Acquired from a Decedent

26 CFR 1.1014-1: Basis of Property Acquired from

a Decedent

Rev. Rul. 2023-2

ISSUE

Is there a basis adjustment under

§ 1014 of the Internal Revenue Code

(Code) to the assets of a trust on the death

of the individual who is the owner of the

trust under chapter 1 of the Code (chapter

1) if the trust assets are not includible in

the owner’s gross estate pursuant to chapter 11 of the Code (chapter 11)1?

FACTS

In Year 1, A, an individual, established

irrevocable trust, T, and funded T with Asset

in a transfer that was a completed gift for

gift tax purposes. A retained a power over

T that causes A to be treated as the owner of

T for income tax purposes under subpart E

of part I of subchapter J of chapter 1 (subpart E). A did not hold a power over T that

would result in the inclusion of T’s assets

in A’s gross estate under the provisions of

chapter 11. By the time of A’s death in Year

7, the fair market value (FMV) of Asset had

appreciated. At A’s death, the liabilities of T

did not exceed the basis of the assets in T,

and neither T nor A held a note on which

the other was the obligor.

LAW

Section 671 provides that, where subpart E treats the grantor or another person

as the owner of any portion of a trust, the

taxable income and credits of the grantor

or the other person include those items of

income, deductions, and credits against

tax of the trust that are attributable to that

portion of the trust to the extent that these

items would be taken into account under

chapter 1 in computing taxable income

or credits against the tax of an individual.

Any remaining portion of the trust is subject to subparts A through D of part I of

subchapter J.

Section 1012(a) provides that the basis

of property is its cost, except as otherwise provided in subchapter O of chapter

1 (subchapter O) (relating to gain or loss

on disposition of property) and subchapters C (relating to corporate distributions

and adjustments), K (relating to partners

and partnerships), and P (relating to capital gains and losses) of chapter 1. One of

the provisions set forth in subchapter O is

§ 1014.

Section 1014(a)(1) generally provides

that, except as otherwise provided in

§ 1014 (including § 1014(f) requiring the

use of consistent basis), the basis of property in the hands of a person acquiring the

property from a decedent or to whom the

property passed from a decedent, if not

sold, exchanged, or otherwise disposed of

before the decedent’s death by that person,

is the FMV of the property at the date of

the decedent’s death.

Section 1014(b) lists the seven types of

property that are considered to have been

acquired from or to have passed from the

decedent for purposes of § 1014(a). The

types of property are:2

• Section 1014(b)(1) – Property

acquired by bequest, devise, or inheritance, or by the decedent’s estate

from the decedent;

• Section 1014(b)(2) – Property transferred by the decedent during life in

trust to pay the income for life to or

on the order or direction of the decedent, with the right reserved to the

decedent at all times before death to

revoke the trust;

• Section 1014(b)(3) – In the case of

decedents dying after December 31,

•

1951, property transferred by the

decedent during life in trust to pay

the income for life or on the order

or direction of the decedent with

the right reserved to the decedent at

all times before death to make any

change in its enjoyment through the

exercise of a power to alter, amend,

or terminate the trust;

Section 1014(b)(4) – Property

passing without full and adequate

consideration under a general power

of appointment exercised by the decedent by will;

Section 1014(b)(6) – Property which

represents the surviving spouse’s onehalf share of community property held

by the decedent and the surviving

spouse under the community property

laws of any State, or United States

territory or any foreign country, if at

least one-half of the whole of the community interest in such property was

includible in determining the value of

the decedent’s gross estate under chapter 11 or § 811 of the Internal Revenue

Code of 1939 (1939 Code);

Section 1014(b)(9) – Property

acquired from the decedent by reason of death, form of ownership, or

other conditions (including property

acquired through the exercise or

non-exercise of a power of appointment), if by reason thereof the

property must be included in determining the value of the decedent’s

gross estate under chapter 11 or under

the 1939 Code. In this case, if the

property is acquired before the death

of the decedent, the basis commencing on the death of the decedent is the

amount determined under § 1014(a)

reduced by the amount allowed to the

taxpayer as deductions in computing

taxable income under subtitle A of

the Code or prior income tax laws

for exhaustion, wear and tear, obsolescence, amortization, and depletion

on the property before the death of

the decedent. However, § 1014(b)(9)

does not apply to:

Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

Section 1014(b)(5) applies only to decedents dying before January 1, 2005. Section 1014(b)(7) and (8) were repealed by section 221(a)(74)(B) of the Tax Increase Prevention Act of 2014,

Public Law 113-295, 128 Stat. 4010, 4049 (December 19, 2014).

April 17, 2023

658

Bulletin No. 2023–16

(A) annuities described in § 72;

(B) stock or securities of a foreign

corporation that would have been

a foreign personal holding company prior to the repeal of § 552

of its next preceding taxable year

prior to the decedent’s death to

which § 1014(b)(5) would apply

if the stock or securities had been

acquired by bequest; and

paragraph of § 1014(b); and

• Section 1014(b)(10) – Property

includible in the gross estate of the

decedent under § 2044 (relating to

certain property for which the marital

deduction was previously allowed).

In any such case, the basis is determined under § 1014(b)(9) as if such

property were described in the first

sentence of § 1014(b)(9).

Section 1.1014-1(a) generally provides that the basis of property acquired

from a decedent is equal to the value

placed upon such property for purposes

of chapter 11. Accordingly, generally the

basis of property acquired from a decedent is the FMV of such property at the

date of the decedent’s death, or, if the

decedent’s executor so elects, at the alternate valuation date prescribed in § 2032.

Property acquired from a decedent

includes, principally, property acquired

by bequest, devise, or inheritance, and,

in the case of decedents dying after

December 31, 1953, property required

to be included in determining the value

of the decedent’s gross estate under any

provision of the Internal Revenue Code

of 1954 or the 1939 Code.

Section 1.1014-2(a)(1) provides that

property acquired by bequest, devise, or

inheritance, or by the decedent’s estate

from the decedent, whether the property

was acquired under the decedent’s will

or under the law governing the descent

and distribution of the property of decedents, is considered to have been acquired

from a decedent and the property’s basis

is determined under the general rule in §

1.1014-1.

Section 1.1014-2(b)(2) generally provides that property is considered to have

been acquired from a decedent to the

extent such property is includible in the

decedent’s gross estate if the decedent

died after December 31, 1953.

Bulletin No. 2023–16

In Rev. Rul. 84-139, 1984-2 C.B. 168,

D, a citizen and resident of foreign country Z, died owning real property located in

Z. B, a United States citizen, inherited the

real property in accordance with the laws

of Z. At the time of D’s death, the property had a basis of $100x and a FMV of

$1,000x. Because the property was located

outside the United States and D was a

nonresident alien, the value of the property was not includible in D’s gross estate

under § 2103 for purposes of chapter 11.

B sold the property the following year for

$1050x, claiming a basis of $1,000x and

gain of $50x. The ruling concludes that,

because B inherited the property from D,

and the property is within the definition of

property acquired from a decedent under

§ 1014(b)(1), it received a basis adjustment to FMV at D’s death and B had

correctly calculated B’s basis and gain. In

Rev. Rul. 84-139, which did not involve

a grantor trust, the property at issue was

acquired by a bequest.

ANALYSIS

For property to receive a basis adjustment under § 1014(a), the property must

be acquired or passed from a decedent.

For property to be acquired or passed

from a decedent for purposes of § 1014(a),

it must fall within one of the seven types

of property listed in § 1014(b). Asset does

not fall within any of the seven types of

property listed in § 1014(b).

First, upon A’s death, Asset was not

”bequeathed,” “devised,” or “inherited”

within the meaning of § 1014(b)(1). A

“bequest” is the act of giving property

(usually personal property or money)

by will. Black’s Law Dictionary (11th

ed. 2019). The Supreme Court defined

“bequest” as a “gift of personal property

by will” for purposes of the predecessor

provision of § 102 that, as today, excluded

gifts, bequests, devises, or inheritance

from gross income for income tax purposes. United States v. Merriam, 263 U.S.

179, 184 (1923).

A “devise” is the act of giving property,

especially real property, by will. Black’s

Law Dictionary (11th ed. 2019). Volume

97 of the Corpus Juris Secundum notes

that although “bequest” and “bequeath”

strictly refer to a gift by will of personal property, the words may be given

659

a broader meaning to include real property which, under the narrower definition,

would be a devise. See 97 C.J.S. Wills §

1861 (2022).

An “inheritance” is property received

from an ancestor under the laws of intestacy or property that a person receives by

bequest or devise. Black’s Law Dictionary

(11th ed. 2019).

In Bacciocco v. United States, 286

F.2d 551, 554-55 (6th Cir. 1961), the

court found that property transferred in

trust prior to the decedent’s death is not

bequeathed or inherited because it did not

pass either by will or intestacy. The court

stated, “[w]e construe those terms [bequest

and inheritance] according to their usual

and normal meaning” and noted that the

decedent’s death did not transfer the assets

to the trust. Id. at 554-56. This does not

imply that property in a trust could never

fall within the meaning of § 1014 (such as

property included in the decedent’s gross

estate or property specifically described

by §§ 1014(b)(2), (3), or (4)); however, in

the facts outlined above, the trust property

does not fall within the meaning of those

terms.

The Congressional committee report

explaining the basis of property acquired

from a decedent for purposes of § 1014(b)

(then designated § 113(a)(5) of the 1939

Code) stated that the provision “applies

basically to property in the decedent’s

probate estate and includible in his gross

estate under § 811(a) [the predecessor provision of § 2031(a)]. In addition, it applies

to property acquired by certain specifically described methods of disposition

which are treated as though the acquisition

was by bequest, devise, or inheritance.”

H.R. Rep. No 83-1337 at 4407-08 (March

9, 1954). Citing that report, the court in

Collins v. United States, 318 F. Supp. 382,

386 (C.D. Cal. 1970) stated, “[i]t seems

clear that property cannot be said to come

from a decedent by ‘bequest, devise, or

inheritance’ unless it is part of the decedent’s probate estate under the laws of the

state of his domicile.”3 The court determined that payments made to a widow by

her deceased husband’s employers, under

contracts negotiated by her husband,

did not pass from the decedent under

§ 1014 and so would not acquire a basis

determined by the contract’s FMV at the

decedent’s death but instead were income

April 17, 2023

with respect to a decedent that would not

receive a basis adjusted to date of death

value.

Second, Asset does not fall within any

of the remaining types of property listed

in § 1014(b). Asset is not described in

§§ 1014(b)(2), (3), or (4) because A did

not retain a power to revoke or amend T or

hold a power to appoint Asset. Asset also

is not described by § 1014(b)(6) because it

is not community property. Finally, Asset

is not described by §§ 1014(b)(9) or (10)

because it is not included in A’s gross

estate under the provisions of chapter 11.

Because at A’s death Asset does not fall

within any of the seven types of property

listed in § 1014(b), Asset does not receive

a basis adjustment under § 1014(a) at A’s

death.

HOLDING

A creates T, an irrevocable trust, retaining a power which causes A to be the

owner of the entire trust for income tax

purposes under chapter 1 but does not

cause the trust assets to be included in A’s

gross estate for purposes of chapter 11.

If A funds T with Asset in a transaction

that is a completed gift for gift tax purposes, the basis of Asset is not adjusted

to its fair market value on the date of A’s

death under § 1014 because Asset was

not acquired or passed from a decedent as

defined in § 1014(b). Accordingly, under

this revenue ruling’s facts, the basis of

Asset immediately after A’s death is the

same as the basis of Asset immediately

prior to A’s death.4

DRAFTING INFORMATION

The principal authors of this revenue

ruling are Cynthia D. Morton and Daniel J. Gespass of the Office of Associate

Chief Counsel (Passthroughs & Special Industries). For further information

regarding this revenue ruling, please

contact Ms. Morton at (202) 317-5279

or Mr. Gespass at (202) 317-6859 (not a

toll-free number).

The court in Collins also determined that the wording of § 1014(b) indicated that the list was exclusive, marking the limits of property acquired from a decedent or passing from a decedent,

and that a transfer must therefore be within that list before it could be considered as eligible for a basis adjustment under § 1014(a). Id. at 385-86.

This revenue ruling does not alter the result in Rev. Rul. 84-139. Property acquired from a non-resident non-citizen decedent that is not included in his or her gross estate may receive a basis

adjustment under § 1014 if the property is acquired by bequest, devise, or inheritance within the meaning of § 1014(b)(1) or is otherwise specifically described in § 1014(b).

April 17, 2023

660

Bulletin No. 2023–16

Part III

Extension of the Transition

Period for the SingleCountry Exception Under

Section 903 of the Internal

Revenue Code

Notice 2023-31

SECTION 1. PURPOSE

This notice announces that the

Department of the Treasury (Treasury

Department) and the Internal Revenue

Service (IRS) intend to provide a longer

transition period for the documentation

requirement in proposed § 1.903-1(c)(2)

(iv)(D) (the documentation requirement)

when the exception to the source-based

attribution requirement in proposed

§ 1.903-1(c)(2)(iii)(B) (the single-country

exception) is finalized.1

SECTION 2. BACKGROUND

Section 901 of the Internal Revenue

Code (Code) allows a credit for foreign

income, war profits, and excess profits

taxes, and section 903 provides that such

taxes include a tax in lieu of a generally-imposed foreign income, war profits,

or excess profits tax. A foreign tax is a

creditable net income tax only if the determination of the foreign tax base conforms

in essential respects to the determination of taxable income under the Code.

To meet this test, a foreign tax must

satisfy the net gain requirement, which

comprises the realization requirement,

the gross receipts requirement, the cost

recovery requirement (formerly the net

income requirement), and the attribution

requirement.

The attribution requirement in § 1.9012(b)(5) requires that a foreign tax conform

to the concepts of taxing jurisdiction

reflected in the Code that define an income

tax in the U.S. sense. With respect to

a foreign tax imposed on nonresident

taxpayers, the attribution requirement

limits the scope of gross receipts and

costs included in the base of a foreign tax

to those that satisfy the activities-based

attribution, source-based attribution, or

property-based attribution tests. § 1.9012(b)(5)(i).

Under the source-based attribution

requirement in § 1.901-2(b)(5)(i)(B), a

foreign tax imposed on the nonresident’s

income on the basis of source meets the

attribution requirement only if the foreign

tax law’s sourcing rules are reasonably

similar to the sourcing rules that apply

for Federal income tax purposes. In the

case of gross income arising from royalties, § 1.901-2(b)(5)(i)(B)(2) provides that

the foreign tax law must source royalties

based on the place of use of, or the right

to use, the intangible property, consistent with how the Code sources royalty

income.

For foreign withholding taxes,

§ 1.903-1(c)(2)(iii) provides that the

foreign withholding tax must meet the

source-based attribution requirement

in § 1.901-2(b)(5)(i)(B) to qualify as a

‘‘covered withholding tax’’ that may be

creditable as a tax in lieu of an income tax.

Thus, a withholding tax on a royalty payment is creditable only if the foreign tax

law sources royalties based upon the place

of use of, or the right to use, the intangible

property, consistent with how the Code

sources royalty income.

On November 22, 2022, the Treasury

Department and the IRS published proposed regulations (REG-112096-22) in

the Federal Register (87 FR 71271) (the

2022 FTC proposed regulations). The

2022 FTC proposed regulations provide

a limited exception to the source-based

attribution requirement for withholding taxes on certain royalty payments.

Under proposed § 1.903-1(c)(2)(iii), a

tested foreign tax satisfies the sourcebased attribution requirement if the tax

meets either the source-based attribution requirement or the single-country

exception. In general, the single-country exception applies if (1) the income

subject to the tested foreign tax is char-

acterized as royalty income under the

foreign tax law,2 and (2) the payment

giving rise to such income is made pursuant to a single-country license (such

license, the required agreement). Proposed § 1.903-1(c)(2)(iii)(B).

Under the documentation requirement,

the required agreement pursuant to which

the royalty is paid must be executed no

later than the date on which the royalty is

paid. However, recognizing that the single-country exception is proposed to be

applicable to periods preceding the release

of the 2022 FTC proposed regulations,

proposed § 1.903-1(c)(2)(iv)(D) provides

a special transition documentation rule

for royalties paid on or before May 17,

2023 (the transition documentation rule).

Under the transition documentation rule,

the required agreement must be executed

no later than May 17, 2023, and the agreement must state (whether in the terms of

the agreement or in recitals) that royalties paid on or before the execution of the

agreement are considered paid pursuant to

the terms of the agreement. According to

the preamble to the 2022 FTC proposed

regulations, taxpayers may choose to rely

on the provisions addressing the attribution requirement for royalty payments

(proposed § 1.901-2(b)(5)(i)(B)(2) and

(d)(1)(iii) and proposed § 1.903-1(c)(2)

and (d)(3), (4), and (8) through (11)) for

foreign taxes paid in taxable years beginning on or after December 28, 2021, and

ending before the effective date of final

regulations adopting these rules.

The Treasury Department and the IRS

have received comments with respect

to the 2022 FTC proposed regulations,

including with respect to the documentation requirement for the single-country

exception. The Treasury Department and

the IRS are considering those comments.

SECTION 3. EXTENSION OF THE

TRANSITION PERIOD FOR THE

DOCUMENTATION REQUIREMENT

To allow for an orderly implementation

of the requirements of the single-country

Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

Income from the sale of a copyrighted article (as determined under rules similar to § 1.861-18) is not characterized as royalty income regardless of the characterization of the income under

the foreign tax law.

Bulletin No. 2023–16

661

April 17, 2023

exception, including for relevant periods

before the finalization of the single-country exception, the Treasury Department and

the IRS intend to modify the transition documentation rule when the single-country

exception in proposed § 1.903-1(c)(2)(iii)

(B) is finalized to provide that the required

agreement must be executed no later than

180 days after the date final regulations

adopting the single-country exception are

filed with the Federal Register.

April 17, 2023

SECTION 4. TAXPAYER RELIANCE

Consistent with the preamble to the

2022 FTC proposed regulations, taxpayers may rely on Section 3 of this notice for

foreign taxes paid in taxable years beginning on or after December 28, 2021, and

ending before the effective date of final

regulations adopting the single-country

exception, provided that the foreign tax is

otherwise eligible for the single-country

662

exception under the 2022 FTC proposed

regulations.

SECTION 5. DRAFTING

INFORMATION

The principal author of this notice is

Teisha M. Ruggiero of the Office of Associate Chief Counsel (International). For

further information regarding this notice,

contact Ms. Ruggiero at (646) 259-8116

(not a toll-free number).

Bulletin No. 2023–16

Part IV

Announcement and Report Concerning Advance Pricing Agreements

March 27, 2023

Announcement 2023-10

This Announcement is issued pursuant to § 521(b) of Pub. L. 106-170, the Ticket to Work and Work Incentives Improvement Act of

1999, which requires the Secretary of the Treasury to report annually to the public concerning advance pricing agreements (APAs)

and the Advance Pricing and Mutual Agreement Program (APMA Program), formerly known as the Advance Pricing Agreement

Program (APA Program). The first report covered calendar years 1991 through 1999. Subsequent reports covered each calendar year

2000 through 2021 separately. This twenty-fourth report describes the experience, structure, and activities of the APMA Program

during calendar year 2022. It does not provide guidance regarding the application of the arm’s length standard.

Part I of this report includes information on the structure, composition, and operation of the APMA Program; Part II presents statistical data; and Part III includes general descriptions of various elements of the APAs executed in 2022, including types of transactions

covered, transfer pricing methods used, and completion time.

John M. Wall

Acting Director, APMA Program

Bulletin No. 2023–16

663

April 17, 2023

Part I. The APMA Program – Structure, Composition, and Operation

[Pub. L. 106-170 § 521(b)(2)(A)]

In February 2012, the former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations1

within the Large Business and International Division of the IRS and combined with the U.S. Competent Authority staff responsible

for transfer pricing cases, thereby forming the APMA Program (APMA).

As of December 31, 2022, APMA’s APA cases were handled by 59 team leaders, 26 economists, 9 managers, and 3 assistant directors.2 Each assistant director oversees three managers who lead teams consisting of both team leaders and economists. APMA’s main

office is in Washington, DC, and it also has offices in northern California (San Francisco and San Jose), southern California (Los

Angeles and Laguna Niguel), Chicago, and New York.

On August 31, 2015, a new revenue procedure governing APA applications was published in 2015-35 I.R.B. on page 263. Revenue

Procedure (Rev. Proc.) 2015-41 provides guidance, information and instructions on APA requests and the administration of APAs.

Rev. Proc. 2015-41 updates and supersedes Rev. Proc. 2006-9, 2006-1 C.B. 278, as modified by Rev. Proc. 2008-31, 2008-1 C.B.

1133, which is also superseded.

Model APAs appear as appendices to this report. Appendix 1 is the model for APAs covered by Rev. Proc. 2006-9. Appendix 2 is the

current model APA for APAs covered by Rev. Proc. 2015-41. A list of primary APMA contacts is available at https://www.irs.gov/

businesses/corporations/apma-contacts.

In 2017, Transfer Pricing Operations became Treaty & Transfer Pricing Operations (“TTPO”).

In late 2020, TTPO’s Treaty Assistance and Interpretation Team (TAIT) joined APMA, bringing the total number of groups in APMA to four. The three legacy APMA groups have primary

responsibility for cases arising under the business profits and associated enterprises articles of U.S. tax treaties. TAIT endeavors to resolve competent authority issues arising under all other

articles of U.S. tax treaties including issues arising under U.S. tax treaties relating to estate and gift taxes. As such, TAIT is separate from APMA’s APA program, and the total numbers of

team leaders and managers handling APA cases do not include TAIT analysts and managers.

April 17, 2023

664

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Part II. APMA Program

Statistical

Data Statistical Data

Part

II. APMA Program

[Pub. L.

L. 106-170

[Pub.

106-170§ 521(b)(2)(C)(i-viii)]

§ 521(b)(2)(C)(i-viii)]

Table 1: APA

Applications

Filed

Table

1: APA Applications

Filed

§ 521(b)(2)(C)(i)3

§ 521(b)(2)(C)(i)

Filed 1991-1999

Unilateral

Filed 1991-19993

Filed 2000-2021

Filed in 2022

Filed 1991-2022

Total FiledTotal

1991-2022

653

Bilateral

Multilateral

1,845 1,845

154

Bilateral

653

Multilateral

Total

401

2,535

183

3,119

Applications Filed

2013-2022

250

200

150

100

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Bilateral APAs

Netherlands

Filed by Country 2022

All Other Countries

Germany

Japan

Switzerland

29%

Mexico

United Kingdom

India

Italy

14%

Korea

Canada

10%

11%

The charts above illustrate the number of complete applications filed per year and the percentage

The charts above illustrate the number of complete applications filed per year and the percentage of bilateral requests received in

of bilateral requests received in 2022 per foreign country. As of December 31, 2022, APMA had

2022 per foreign country. As of December 31, 2022, APMA had also received 34 user fee filings that were not yet accompanied by a

also

received

user fee filings

thattowere

not

yet accompanied

by a substantially complete APA

substantially

complete

APA34

application,

in addition

the 183

complete

APA applications.

application, in addition to the 183 complete APA applications.

The first APA Statutory Report, which compiled APA data from 1991-1999, did not report the cumulative number

of applications for those years by submission type, so the cumulative totals cannot be reported in that manner.

The first APA Statutory Report, which compiled APA data from 1991-1999, did not report the cumulative number of applications for those years by submission type, so the cumulative totals

cannot be reported in that manner.

Bulletin No. 2023–16

665

April 17, 2023

Table 2: Executed4 and Pending APAs

§ 521(b)(2)(C)(ii-vi)56

Table 2: Executed and Pending APAs

§ 521(b)(2)(C)(ii-vi)

Unilateral

Total Executed 1991-2021

687

Total Executed 1991-2021

687

Total Executed in 2022

Total Executed 1991-2022

697

Total Executed 1991-2022

697

Total Pending as of 12/31/2022

Renewals Executed in 20225

Total Pending as of 12/31/2022

Renewals

in 20225

Renewals

Pending6Executed

as of 12/31/2022

Renewals Pending6 as of 12/31/2022

Bilateral

Multilateral

Bilateral

Multilateral

1,483

1,549

480

185 32

185

Total

2,191

77 2,268

2,268

564

42 237

237

APAs Executed

2013-2022

150

100

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Bilateral APAs

Executed by Country 2022

China

Belgium 3%

Finland

United Kingdom All Other Countries

Korea

Italy

Germany

Switzerland

Japan

39%

Canada

14%

India

In 2022,

percentage

of renewals

decreased

(55decreased

percent of all

executed

2022 versus

63 percent

In the

2022,

the percentage

ofexecuted

renewals

executed

(55APAs

percent

of allin APAs

executed

in in 2021). The

charts above illustrate trends in the number of APAs executed per year and the countries involved in the bilateral APAs that were

executed

in 2022.

“Executed APAs” refers to APAs that were finalized and includes both initial and renewal APAs.

The number of renewals executed is included in the total number of APAs executed during the year.

The number of renewals still pending as of year-end is also included in the total number of pending APAs.

“Executed APAs” refers to APAs that were finalized and includes both initial and renewal APAs.

The number of renewals executed is included in the total number of APAs executed during the year.

The number of renewals still pending as of year-end is also included in the total number of pending APAs.

April 17, 2023

666

Bulletin No. 2023–16

2022 versus 63 percent in 2021). The charts above illustrate trends in the number of APAs

executed per year and the countries involved in the bilateral APAs that were executed in 2022.

Pending APAs

2013-2022

600

400

200

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Pending Bilateral APAs

by Country

All Other Countries

Switzerland

14%

United Kingdom

Germany

Mexico

Italy

Korea

Canada

11%

Japan

24%

India

22%

As the top chart illustrates, the number of pending requests increased relative to December 31,

As the

top chart

illustrates,

the number

of pending

relative

to December

2021. As

of December 31, 2022,

2021.

As of

December

31, 2022,

almostrequests

half ofincreased

the pending

bilateral

APA 31,

requests

involved

almost half of the pending bilateral APA requests involved either Japan or India.

either Japan or India.

Table 3: APAs Revoked or Cancelled and Applications Withdrawn

Table 3: APAs

Revoked or Cancelled and Applications Withdrawn

§ 521(b)(2)(C)(vii)

Revoked

or Cancelled

1991-2000

Revoked

or Cancelled

1991-2000

Revoked

or Cancelled

2001-2021

Revoked

or Cancelled

2001-2021

Revoked

Cancelled

2022

Revoked or Cancelled in 2022

Total Revoked or Cancelled 1991-2022

Unilateral

Total Revoked or Cancelled 1991-2022

Bilateral

Multilateral

TotalTotal

10 10

11 11

Withdrawn 1991-20008

49 49

Withdrawn 2001-2021

152

229

Withdrawn 2001-2021

152

229

Withdrawn in 2022

Withdrawn

1991-2022

284

The first APA Statutory Report, which compiled APA data from 1991-1999, and the second APA Statutory

Report, which compiled APA data for 2000, did not report the cumulative number of applications for those years by

submission type, so the cumulative totals cannot be reported in that manner.

See supra note 7.

The first APA Statutory Report, which compiled APA data from 1991-1999, and the second APA Statutory Report, which compiled APA data for 2000, did not report the cumulative number

of applications for those years by submission type, so the cumulative totals cannot be reported in that manner.

See supra note 7.

Bulletin No. 2023–16

667

April 17, 2023

Withdrawn in 2022

TableWithdrawn

4: APAs Executed

in 2022 by Industry

1991-2022

§ 521(b)(2)(C)(viii)

Table 4: APAs Executed in 2022 by Industry

§ 521(b)(2)(C)(viii)

284

Industry

Wholesale/Retail Trade

Manufacturing

Services

Finance, Insurance, and Real Estate

All Other Industries

APAs Executed

in 2022 by Industry

Manufacturing

40%

Services

13% Finance, Insurance

and Real Estate

All Other Industries

Wholesale/Retail

Trade

42%

Table 4a: Manufacturing APAs Executed in 2022

Table 4a: Manufacturing

APAs

in 20229

Type

ofExecuted

Manufacturing

Chemical

Type of Manufacturing

Computer

and Electronic Product

Chemical

Transportation

Computer

and ElectronicEquipment

Product

Miscellaneous

Transportation

Equipment

Miscellaneous

All Other

Manufacturing

All Other Manufacturing

Types of Manufacturing APAs

Executed in 2022

Transportation

Equipment

Manufacturing

19%

Miscellaneous

Manufacturing

Industries in the Miscellaneous Manufacturing subsector (NAICS Code 339) make a wide range of products that

Computer

and

cannot readily be classified

specific NAICS manufacturing subsectors.

All in

Other

Electronic Product

Manufacturing

29%

Chemical

Manufacturing

42%

Table 4b: Wholesale/Retail Trade APAs Executed in 2022

Type of Wholesale/Retail Trade

Industries in the Miscellaneous Manufacturing subsector (NAICS Code 339) make a wide range of products that cannot readily be classified in specific NAICS manufacturing subsectors.

Merchant Wholesalers, Durable Goods

Merchant Wholesalers, Nondurable Goods

April All

17,Other

2023Wholesalers

668

Bulletin No. 2023–16

Manufacturing

Computer and

Electronic Product

Manufacturing

29%

All Other

Manufacturing

Table 4b: Wholesale/Retail Trade APAs Executed in 2022

Type of Wholesale/Retail Trade

Merchant Wholesalers, Durable Goods

Merchant Wholesalers, Nondurable Goods

All Other Wholesalers

Types of Wholesale/Retail Trade APAs

Executed in 2022

All Other

Wholesalers

12.5%

Merchant

Wholesalers,

Nondurable Goods

12.5%

Merchant

Wholesalers, Durable

Goods

75%

Bulletin No. 2023–16

669

April 17, 2023

Part III. General Descriptions of APAs Executed in 2022

Part

III. General

Descriptions

of APAs Executed

[Pub.

L. 106-170

§ 521(b)(2)(D)

and (E)]in 2022

[Pub. L. 106-170 § 521(b)(2)(D) and (E)]

Nature

of the Relationships

Nature

of the Relationships

§ 521(b)(2)(D)(i)

Relationships between Controlled Parties

U.S. Parent &

Non-U.S. Subsidiary

31%

Sister Companies

Non-U.S. Parent &

U.S. Subsidiary

62%

As in prior years, more than half of the APAs executed in 2022 involved transactions between non-U.S. parents and U.S. subsidiaries.

As in prior years, more than half of the APAs executed in 2022 involved transactions between

non-U.S. parents and U.S. subsidiaries.

Covered Transactions, Functions and Risks, and Tested Parties

§ 521(b)(2)(D)(ii-iii)

Covered Transactions, Functions and Risks, and Tested Parties

§ 521(b)(2)(D)(ii-iii)

Types of Covered Transactions

Sale of Tangible

Property from the

U.S.

14%

Sale of Tangible

Property into the U.S.

23%

All Other Types of

Transactions

Use of Intangible

Property by a U.S.

Entity

10%

Use of Intangible

Property by a NonU.S. Entity

12%

Provision of Services

by a U.S. Entity

23%

Provision of Services

by a Non-U.S. Entity

16%

the transactions

in APAs

executed

involve

saleorof

Most Most

of the of

transactions

covered incovered

APAs executed

in 2022

involvein

the2022

sale of

tangiblethe

goods

thetangible

provisiongoods

of services. Twenty-twoorpercent

of the transactions

involve

the use of intangible

which can beinvolve

among the

transactions in

the provision

of services.

Twenty-two

percent property,

of the transactions

themost

usechallenging

of intangible

APMA’s

inventory.

property,

which can be among the most challenging transactions in APMA’s inventory.

In the majority of APAs, the covered transactions involve numerous business functions and risks. For instance, with respect to funcIn the majority of APAs, the covered transactions involve numerous business functions and risks.

tions, APAs involving manufactured products typically involve a controlled group that conducts research and development (R&D),

Forininstance,

with and

respect

to functions,

APAsthe

involving

products

involve

engages

product design

engineering,

manufactures

product, manufactured

markets and distributes

the typically

product, and

performs support

a controlled

group

thatand

conducts

researchRegarding

and development

(R&D),group

engages

in product

design

functions

such as legal,

finance,

human resources.

risks, the controlled

may assume

a variety

of risks, including

and

engineering,

theand

product,

markets

and distributes

theand

product,

and performs

market

risks,

R&D risks, fimanufactures

nancial risks, credit

collection

risks, product

liability risks,

general business

risks. In the APA evaluationsupport

process,functions

a significantsuch

amount

of timefinance,

and effortand

is devoted

understanding

how the functions

andcontrolled

risks are allocated among

as legal,

humantoresources.

Regarding

risks, the

the controlled

groupassume

of companies

that are

the coveredmarket

transactions.

methods

requiring

the selection

of a tested party, the

group may

a variety

of party

risks,toincluding

risks,ForR&D

risks,

financial

risks, credit

testedand

partycollection

chosen generally

will

the

least

complex

the

controlled

taxpayers.

risks, product liability risks, and general business risks. In the APA evaluation

process, a significant amount of time and effort is devoted to understanding how the functions

and risks are allocated among the controlled group of companies that are party to the covered

APAs often cover more than one type of transaction.

transactions. For methods requiring the selection of a tested party, the tested party chosen

generally will be the least complex of the controlled taxpayers.

April 17, 2023

670

Bulletin No. 2023–16

Types of Tested Parties

and risks are allocated among the controlled group of companies that are party to the covered

transactions. For methods requiring the selection of a tested party, the tested party chosen

generally will be the least complex of the controlled taxpayers.

Types of Tested Parties

U.S. Distributor

34%

All Other Types of

Tested Parties

Non-U.S. Service

Provider

18%

U.S. Manufacturer

21%

Non-U.S. Distributor

19%

U.S. Service Provider

Consistent with prior years, a majority of tested parties11 in 2022 were U.S. distributors, U.S. manufacturers, or U.S. service providers.

APAs often

cover

more than

one type of transaction.

Transfer

Pricing

Methods

Used

§ 521(b)(2)(D)(iv)

9 (TPM) for both the sale of tangible property and the use of intangible

In 2022, the most commonly used transfer pricing method

property continued to be the comparable profits method/transactional net margin method (CPM/TNMM). The CPM/TNMM was used

for 77 percent of these types of transactions.

For covered transactions involving tangible and intangible property that used the CPM/TNMM, the operating margin (OM) is still the

most common profit level indicator (PLI) used to benchmark results. It was used 73 percent of the time. Other PLIs, such as the Berry

Ratio and return on total cost, made up the other 27 percent. As used here, “OM” is defined as the ratio of operating profit to sales,12

and “Berry Ratio” is defined as the ratio of gross profit to operating expenses.13 Most services transactions (80 percent) also used the

CPM/TNMM with the OM and operating profit to operating expense being the most common PLIs (used 53 percent of the time).14

Sources of Comparables, Comparables Selection Criteria, and Nature of Adjustments to Comparables or Tested Party Data

§ 521(b)(2)(D)(v-vii)

For the APAs executed in 2022 that involved the CPM/TNMM with a North American tested party, the most widely used data source

for comparables was Standard and Poor’s Compustat/Capital IQ database. Different sources were used in other cases (e.g., where the

tested party was not a U.S. or Canadian entity or where transaction-based methods were applied). The other most commonly used

databases are listed in the table below.

Table 5: Sources of Comparable Data

Bureau van Dijk (BvD)

Prowess

Global Vantage

RoyaltySource

ktMINE

RoyaltyStat

Orbis

In making comparability adjustments, typical balance sheet adjustments, as identified in Treas. Reg. §§ 1.482-1(d)(2) and 1.482-5(c)

(2)(iv), were made in most cases, including where appropriate, adjustments for payables, receivables, inventory, and fixed assets.

In addition, where appropriate, adjustments for different accounting practices were made to convert from LIFO to FIFO inventory

accounting, and a small number of cases involved the accounting reclassification of expenses, e.g., from COGS to operating expenses.

Not all the executed APAs involve a tested party.

See Treas. Reg. § 1.482-5(b)(4)(ii)(A).

See Treas. Reg. § 1.482-5(b)(4)(ii)(B).

The majority of APAs that covered services transactions also included tangible/intangible transactions and are not tested under a separate PLI.

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April 17, 2023

Ranges, Goals, and Adjustment Mechanisms

§ 521(b)(2)(D)(viii-ix)

Most transactions covered in APAs target an interquartile range or point within the interquartile range as described in Treas. Reg.

§ 1.482-1(e)(2)(iii)(C), and other targeted arm’s length ranges. Where the transaction involves a royalty payment for the use of

intangible property, both specific royalty rates and ranges have been used. Where the covered transaction is the sale or license of

intangible property, and the payment for such transfer would be a royalty based solely on external comparable uncontrolled transactions, a secondary or confirming method, e.g., a test of the post-royalty operating margin or cost-plus mark-up, has sometimes also

been used. The testing periods of the APAs executed in 2022 were either a single year, the term of the APA only, or the term of the

APA plus rollback years.

APAs executed in 2022 included several mechanisms for making adjustments to the tested party’s results when the results fall outside

the interquartile range or do not match the point required by the APA. Examples of the mechanisms used include an adjustment bringing the tested party’s results for a single year to either the closer edge of the range or the median of the range, an adjustment to bring

the results over the APA term to the closer edge of the range, or an adjustment to bring the results to a specified point or royalty rate.

Critical Assumptions

§ 521(b)(2)(D)(v)

The model APAs used by the IRS (included as Appendix 1 and Appendix 2 of this report) include standard critical assumptions that

there will be no material changes to the taxpayer’s business or to its tax or financial accounting practices during the APA term. A few

bilateral cases have also included critical assumptions tied to the taxpayer’s profitability in a certain year or over the term of the APA.

Pursuant to § 7.06(3) of Rev. Proc. 2015-41, APMA will cancel an APA in the event of a failure of a critical assumption unless the

parties agree to revise the APA.

Term Lengths of APAs Executed in 2022

§ 521(b)(2)(D)(x)

Table 6: Term Lengths of APAs Executed in 2022

Term Length (years)

Average

Number of APAs

As described in § 3.03(1) of Rev. Proc. 2015-41, taxpayers should request an APA term that will cover at least five prospective years

and may also request that the APA be “rolled back” to cover one or more earlier taxable years, although the appropriate APA

term is decided on a case-by-case basis. Of the APAs executed in 2022, 16 percent included rollback years. A substantial number

of those APAs with terms of greater than five years were submitted as a request for a five-year term, and the additional years were

agreed to between the taxpayer and the IRS (or, in the case of a bilateral APA, between the IRS and the foreign government upon the

taxpayer’s request) to ensure a reasonable amount of prospectivity in the APA term.

April 17, 2023

672

Bulletin No. 2023–16

term, and the additional years were agreed to between the taxpayer and the IRS (or, in the case of

a bilateral APA, between the IRS and the foreign government upon the taxpayer’s request) to

ensure a reasonable amount of prospectivity in the APA term.

Amount of Time Taken to Complete New and Renewal APAs

§ 521(b)(2)(E)

Amount of Time Taken to Complete New and Renewal APAs

Table§7:

Months to Complete New and Renewal APAs Executed in 2022

521(b)(2)(E)

Unilateral New and Renewal

Bilateral APAs Executed

Unilateralin&2022

Bilateral

Table 7: Months to Complete

Average Bilateral

Median

Average

UnilateralMedian

& Bilateral

N/A

Average N/A

Median 53.0

Average 53.0

Median 53.0

Average 53.0

Median

Average Unilateral

Median

New

Renewal

New

22.9

New Renewal

& Renewal

22.9

New & Renewal

N/A 17.7 N/A 36.6

22.9 17.7 17.7 44.7

22.9

17.7

53.0 30.6 53.0 33.6

36.6 45.7 30.6 42.0

44.7

45.7

53.0 28.3

33.6 43.4

42.0

53.0

28.3

43.4

Months to Complete New and Renewal APAs Executed in 2022

Months to Complete

New

Renewal

New &

Renewal

Average

Median

Unilateral

Average

Median

Bilateral

Type of APA

Average

Median

Unilateral &

Bilateral

Median completion time continued to rise in 2022 to 43.4 months (from 35.1 months in 2021and 32.7 months in 2020).

Efforts to Ensure Compliance with APAs

§ 521(b)(2)(F)

As described in § 7.02(1) of Rev. Proc. 2015-41, taxpayers are required to file annual reports to demonstrate compliance with the

terms and conditions of their APAs. The filing and review of these annual reports are critical parts of the APA process. Through annual

report review, the APMA Program monitors taxpayer compliance with APAs on a contemporaneous basis. Annual report review also

provides current information on the success or problems associated with the various TPMs adopted in the APA process.

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April 17, 2023

Nature of Documentation Required in Annual Report

§ 521(b)(2)(D)(xi)

APAs require taxpayers to file timely and complete annual reports describing their operations and demonstrating compliance with

the APA’s terms and conditions. Not every annual report will include each of the items listed in the following table; they are required

where the facts demonstrate a need for such documentation. The requirements for the information to be included in a specific APA

annual report is included in Appendix C of the executed APA.

Statement regarding all material differences between Taxpayer’s business operations during APA year and description of

Taxpayer’s business operations contained in Taxpayer’s APA request. If there are no material differences, a statement to

that effect.

Statement concerning all material changes in Taxpayer’s accounting methods and classifications, and methods of

estimation, from those described or used in Taxpayer’s request for the APA. If there has been no material change in

accounting methods and classifications or methods of estimation, a statement to that effect.

Any change to the Taxpayer notice information.

Description of any failure to meet critical assumptions. If there has been none, a statement to that effect.

Statement identifying whether any material information submitted while the APA request was pending is discovered to be

false, incorrect, or incomplete.

The amount, reason for, and financial analysis of any compensating adjustment, for the APA year, including but not

limited to the amounts paid or received by each affected entity; the character (such as capital or ordinary expense) and

country source of the funds transferred, and the specific line item(s) of any affected U.S. tax return; and any change to any

entity classification for federal income tax purposes of any member of Taxpayer’s group that is relevant to the APA.

The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the APA

year, as reflected on Schedule M-1 or Schedule M-3 of the U.S. return for the APA year.

Statement regarding whether Taxpayer contemplates requesting, or has requested, to renew, modify, or cancel the APA.

Financial statements and any necessary account detail to show compliance with the TPM, with a copy of the opinion from

an independent certified public accountant or other documentation required by paragraph 5(f) of the APA.

10.

Financial analysis demonstrating Taxpayer’s compliance with TPM.

11.

Organizational chart.

12.

A copy of the APA and any amendment.

13.

A penalty of perjury statement.

Approaches for Sharing of Currency or Other Risks

§ 521(b)(2)(D)(xii)

In appropriate cases, APAs may provide specific approaches for dealing with risks, including currency risk, such as adjustment mechanisms and/or critical assumptions.

April 17, 2023

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APPENDIX 1– Model APA (based on Rev. Proc. 2006-9)

ADVANCE PRICING AGREEMENT

between

[Insert Taxpayer’s Name]

and

THE INTERNAL REVENUE SERVICE

PARTIES

The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name], EIN

________.

RECITALS

[Insert Taxpayer Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to as

“Taxpayer”) and is entering into this APA on behalf of itself and other members of its consolidated group.

Taxpayer’s principal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].

This APA contains the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions

under I.R.C. section 482, the Treasury Regulations thereunder, and any applicable tax treaties.

{If renewal, add} [Taxpayer and IRS previously entered into an APA covering taxable years ending _____ to ______, executed on

________.]

AGREEMENT

The Parties agree as follows:

Covered Transactions. This APA applies to the Covered Transactions, as defined in Appendix A.

Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.

Term. This APA applies to the APA Term, as defined in Appendix A.

Operation.

Revenue Procedure 2006-9 governs the interpretation, legal effect, and administration of this APA.

Nonfactual oral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue Procedure 2006-9

(including any proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in

compromise negotiations within the meaning of Rule 408 of the Federal Rules of Evidence.

Compliance.

Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of this

APA on its timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for any taxable year covered by this

APA (APA Year) is filed prior to, or no later than 60 days after, the effective date of this APA, then Taxpayer must report its

taxable income for that APA Year in an amount that is consistent with Appendix A and all other requirements of this APA

either on the original U.S. Return or on an amended U.S. Return filed no later than 120 days after the effective date of this

APA, or through such other means as may be specified herein.

Bulletin No. 2023–16

675

April 17, 2023

{Use or edit the following when U.S. Group or Foreign Group contains more than one member.} [This APA addresses the

arm’s-length nature of prices charged or received in the aggregate between Taxpayer and Foreign Participants with respect

to the Covered Transactions. Except as explicitly provided, this APA does not address and does not bind the IRS with respect

to prices charged or received, or the relative amounts of income or loss realized, by particular legal entities that are members

of U.S. Group or that are members of Foreign Group.]

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.

If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:

enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section 482

consistent with this APA;

ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006-9; or

iii. revise this APA, if the Parties agree.

Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix C

and section 11.01 of Revenue Procedure 2006-9. Taxpayer must file the Annual Report for all APA Years through the APA

Year ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert

month and day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual

Report shall be due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary to clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days.

Additional time may be allowed for good cause.

The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, the Financial

Statements, and other APA Records, for the APA Term and any other year necessary to verify compliance. For Taxpayer

to comply with this APA, {use the following or an alternative} an independent certified public accountant must render an

opinion that Taxpayer’s Financial Statements present fairly, in all material respects, Taxpayer’s financial position under U.S.

GAAP.

In accordance with section 11.04 of Revenue Procedure 2006-9, Taxpayer will (1) maintain the APA Records, and (2) make

them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes compliance with the record-maintenance provisions of I.R.C. sections 6038A and 6038C for the Covered Transactions

for any taxable year during the APA Term.

The True Taxable Income within the meaning of Treasury Regulations sections 1.482-1(a)(1) and (i)(9) of a member of an

affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.

{Optional for US Parent Signatories} To the extent that Taxpayer’s compliance with this APA depends on certain acts of

Foreign Group members, Taxpayer will ensure that each Foreign Group member will perform such acts.

Critical Assumptions. This APA’s critical assumptions, within the meaning of Revenue Procedure 2006-9, section 4.05, appear in

Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006-9, section 11.06, governs.

Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return information” under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C.

section 6110(b)(1). Section 521(b) of Pub. L. 106-170 provides that the Secretary of the Treasury must prepare a report for public

disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does

not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.

Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the Director of the

Advance Pricing and Mutual Agreement Program, to the extent reasonably practicable, before seeking alternative remedies.

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Materiality. In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material

facts” in Revenue Procedure 2006-9, section 11.06(4).

10. Section Captions. This APA’s section captions, which appear in italics, are for convenience and reference only. The captions do

not affect in any way the interpretation or application of this APA.

11. Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D contains

definitions for capitalized terms not elsewhere defined in this APA.

12. Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever, delete,

or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.

13. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to Taxpayer.

14. Notice. Any notices required by this APA or Revenue Procedure 2006-9 must be in writing. Taxpayer will send notices to the IRS

at the address and in the manner set forth in Revenue Procedure 2006-9, section 4.11. The IRS will send notices to:

Taxpayer Corporation

Attn: Jane Doe, Sr. Vice President (Taxes)

1000 Any Road

Any City, USA 10000

(phone: _________)

15. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties

execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an original.

WITNESS,

The Parties have executed this APA on the dates below.

[Taxpayer Name in all caps]

By: ___________________________

Jane Doe

Sr. Vice President (Taxes)

Date: ___________________, 201___

IRS

By: ___________________________

John M. Wall

Acting Director, Advance Pricing and Mutual

Agreement Program

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Date: ___________________, 201___

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APPENDIX A

COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)

Covered Transactions.

[Define the Covered Transactions.]

APA Term.

This APA applies to Taxpayer’s taxable years ending __________ through ________ (APA Term).

TPM.

{Note: If appropriate, adapt language from the following examples.}

[The Tested Party is __________.]

• CUP Method

The TPM is the comparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for

_________ is between _______ and ___________ per unit.

• CUP Method

The TPM is the CUT Method. The Arm’s Length Range of the royalty charged for the license of ______is between

____% and ___ % of [Taxpayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net sales revenue or other royalty base.]

• Resale Price Method (RPM)

he TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as folT

lows: the Tested Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations

sections 1.482-5(d)(1) and (2)) for that APA Year. The Arm’s Length Range is between ____% and ___ %, and the

Median of the Arm’s Length Range is ___%.

• Cost Plus Method

he TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the

Tested Party’s ratio of gross profit to production costs (as those terms are defined in Treasury Regulations sections

1.482-3(d)(1) and (2)) for that APA Year. The Arm’s Length Range is between ___% and ___%, and the Median of

the Arm’s Length Range is ___%.

• CPM with Berry Ratio PLI

he TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s

Berry Ratio is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses

(as those terms are defined in Treasury Regulations sections 1.482-5(d)(2) and (3)) for that APA Year. The Arm’s

Length Range is between ____ and ___, and the Median of the Arm’s Length Range is ___.

• CPM using an Operating Margin PLI

he TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested ParT

ty’s Operating Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales

revenue (as those terms are defined in Treasury Regulations section 1.482-5(d)(1) and (4)) for that APA Year. The

Arm’s Length Range is between ____% and ___ %, and the Median of the Arm’s Length Range is ___%.

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• CPM using a Three-year Rolling Average Operating Margin PLI

he TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested

Party’s Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested

Party’s operating profit (within the meaning of Treasury Regulation section 1.482-5(d)(4) for that APA Year and the

two preceding years, divided by the sum of its sales revenue (within the meaning of Treasury Regulation section

1.482-5(d)(1)) for that APA Year and the two preceding years. The Arm’s Length Range is between ____% and

____%, and the Median of the Arm’s Length Range is ___%.

• Residual Profit Split Method

The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual

profit-split mechanism].

[Insert additional provisions as needed.]

Application of TPM.

For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered

Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating

Margin for the Tested Party] within the Arm’s Length Range, then the amounts reported on Taxpayer’s U.S. Return must

clearly reflect such results.

For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,

Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party]

outside the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect an adjustment that

brings the [price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin,

Three-Year Rolling Average Operating Margin] to the Median.

For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s

and Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with the following adjustments:

(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be

treated as an operating expense]; and

(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such

results shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.

APA Revenue Procedure Treatment

If Taxpayer makes an adjustment under paragraph 4 of this Appendix A (a “primary adjustment”), Taxpayer and its related

foreign entity may elect APA Revenue Procedure Treatment in accordance with section 11.02(3) of Revenue Procedure

2006-9 and avoid the possible adverse tax consequences of a secondary adjustment that would otherwise follow the primary

adjustment.

[Insert additional provisions as needed.]

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APPENDIX B

CRITICAL ASSUMPTIONS

This APA’s critical assumptions are:

1. The business activities, functions performed, risks assumed, assets employed, and financial and tax accounting methods and

classifications [and methods of estimation] of Taxpayer in relation to the Covered Transactions will remain materially the same as

described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.

[Insert additional provisions as needed.]

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APPENDIX C

APA RECORDS AND ANNUAL REPORT

APA RECORDS

The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes, work

papers, records, or other writings that support the information provided in such documents.

ANNUAL REPORT

The Annual Report (and each of the four copies required by paragraph 5(e) of this APA) will include:

Two copies of a properly completed APA Annual Report Summary in the form of Appendix E to this APA, one copy of the form

bound with, and one copy provided separately from, the rest of the Annual Report.

A table of contents, organized as follows:

Statements that fully identify, describe, analyze, and explain:

All material differences between the U.S. Group’s business operations (including functions, risks assumed, markets, contractual terms, economic conditions, property, services, and assets employed) during the APA Year from the business operations

described in the APA Request. If there have been no material differences, the Annual Report will include a statement to that

effect.

All material differences between the U.S. Group’s accounting methods and classifications, and methods of estimation used

during the APA Year, from those described or used in the APA Request. If any change was made to conform to changes in

U.S. GAAP (or other relevant accounting standards) Taxpayer will specifically identify the change. If there has been no

material change in accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that effect.

Any change to the Taxpayer notice information in paragraph 14 of this APA.

Any failure to meet any critical assumption. If there has been no failure, the Annual Report will include a statement to that

effect.

Whether or not material information submitted while the APA Request was pending is discovered to be false, incorrect, or

incomplete.

Any change to any entity classification for federal income tax purposes (including any change that causes an entity to be

disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions

or is otherwise relevant to the TPM.

The amount, reason for, and financial analysis of (1) any primary adjustments made under Appendix A for the APA Year; and

(2) any (a) secondary adjustments that follow such primary adjustments or (b) accounts receivable that Taxpayer establishes,

in lieu of secondary adjustments, by electing APA Revenue Procedure Treatment pursuant to paragraph 5 of Appendix A and

Revenue Procedure 2006-9, section 11.02(3), for the APA Year, including but not limited to:

the amounts due or owed, and paid or received by each affected entity;

ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the specific

affected line item(s) of any affected U.S. Return;

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iii. the date(s) and means by which the payments are or will be made; and

iv. whether or not APA Revenue Procedure Treatment was elected pursuant to paragraph 5 of Appendix A and Revenue

Procedure 2006-9, section 11.02(3).

The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the APA Year,

as reflected on Schedule M-1 or Schedule M-3 of the U.S. Return for the APA Year.

Whether Taxpayer contemplates requesting, or has requested, to renew, modify, or cancel the APA.

The Financial Statements, and any necessary account detail to show compliance with the TPM, including consolidating financial

statements, segmented financial data, records from the general ledger, or similar information if the assets, liabilities, income, or

expenses relevant to showing compliance with the TPM are a subset of the assets, liabilities, income, or expenses presented in

the Financial Statements.

{Use the following or the alternative prescribed by paragraph 5(f) of this APA:} A copy of the independent certified public

accountant’s opinion required by paragraph 5(f) of this APA.

A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and reference the information required under item 4 above in sufficient account detail to allow the IRS to determine whether Taxpayer has

complied with the TPM.

An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities that

are parties to the Covered Transactions or are otherwise relevant to the TPM.

A copy of the APA and any amendment.

A penalty of perjury statement, executed in accordance with Revenue Procedure 2006-9, section 11.01(6) and (7).

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APPENDIX D

DEFINITIONS

The following definitions control for all purposes of this APA. The definitions appear alphabetically below:

Term

Annual Report

APA

Definition

A report within the meaning of Revenue Procedure 2006-9, section 11.01.

This Advance Pricing Agreement, which is an “advance pricing agreement” within the meaning of

Revenue Procedure 2006-9, section 2.04.

APA Records

The records specified in Appendix C.

APA Request

Taxpayer’s request for this APA dated _________, including any amendments or supplemental or

additional information thereto.

APA Year

This term is defined in paragraph 5(a) of this APA.

Covered Transaction(s)

This term is defined in Appendix A.

Financial Statements

Financial statements prepared in accordance with U.S. GAAP and stated in U.S. dollars.

Foreign Group

Worldwide Group members that are not U.S. persons.

Foreign Participants

[name the foreign entities involved in Covered Transactions].

I.R.C.

The Internal Revenue Code of 1986, 26 U.S.C., as amended.

Pub. L. 106-170

The Ticket to Work and Work Incentives Improvement Act of 1999.

Revenue Procedure 2006-9 Rev. Proc. 2006-9, 2006-1 C.B. 278.

Transfer Pricing Method

A transfer pricing method within the meaning of Treasury Regulation section 1.482-1(b) and

(TPM)

Revenue Procedure 2006-9, section 2.04.

U.S. GAAP

U.S. generally-accepted accounting principles.

U.S. Group

Worldwide Group members that are U.S. persons.

U.S. Return

For each taxable year, the “returns with respect to income taxes under subtitle A” that Taxpayer

must “make” in accordance with I.R.C. section 6012. {Or substitute for partnership: For each

taxable year, the “return” that Taxpayer must “make” in accordance with I.R.C. section 6031.}

Worldwide Group

Taxpayer and all organizations, trades, businesses, entities, or branches (whether or not

incorporated, organized in the United States, or affiliated) owned or controlled directly or indirectly

by the same interests.

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APPENDIX E

APA ANNUAL REPORT SUMMARY FORM

The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader supplies some of the information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the form as part of

its Annual Report.

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APA Annual Report

SUMMARY

APA Information

Department of the Treasury—Internal Revenue Service

APA No. _______________

Large Business and International Division

Team Leader ____________________________

Treaty and Transfer Pricing Operations

Economist _______________________________

Advance Pricing and Mutual Agreement Program

Intl Examiner _____________________________

Taxpayer Name: ___________________________________________________

Taxpayer EIN:_________________ NAICS:___________________

APA Term: Taxable years ending ________ to ____________

Original APA [ ] Renewal APA [ ]

Annual Report due dates:

_________________, 201__ for all APA Years through APA Year ending in 200__; for each APA Year

thereafter, on _________________ [month and day] immediately following the close of the APA Year

Principal foreign country(ies) involved in covered transaction(s): _______________________________________

Type of APA: [ ] unilateral [ ] bilateral with ________________

Tested party is [ ] US [ ] foreign [ ] both

Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods and services:

[ ] N/A [ ] <$50 million [ ] $50-100 million [ ] $100-250 million [ ] $250-500 million [ ] >$500 million

APA tests on (check all that apply):

[ ] annual basis [ ] multi-year basis [ ] term basis

APA provides (check all that apply) a:

[ ] range [ ] point [ ] floor only [ ] ceiling only [ ] other_____________

APA provides for adjustment (check all that apply) to:

[ ] nearest edge [ ] median [ ] other point

APA Annual Report

Information

APA date executed: ______________, 201__

This APA Annual Report Summary is for APA Year(s) ending in 200__ and was filed on _____________, 201__

(to be completed

Check here [ ] if Annual Report was filed after original due date but in accordance with extension.

by the Taxpayer)

Has this APA been amended or changed? [ ] yes [ ] no

Effective Date: ______________________

Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no

Were all the critical assumptions met? [ ] yes [ ] no

Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual Report?

[ ] yes [ ] no If yes, which year(s): 200___

Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no

Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no

Any change to the entity classification of a party to the APA? [ ] yes [ ] no

Taxpayer notice information contained in the APA remains unchanged. [ ] yes [ ] no

Taxpayer's current US principal place of business: (City, State) _____________________________________

APA Annual Report

Financial analysis reflecting TPM calculations

[ ] yes [ ] no

Checklist of

Financial statements showing compliance with TPM(s)

[ ] yes [ ] no

Key Contents

Schedule M-1 or M-3 book-tax differences

[ ] yes [ ] no

(to be completed

Current organizational chart of relevant portion of world-wide group

[ ] yes [ ] no

Attach copy of APA

[ ] yes [ ] no

by the Taxpayer)

Other APA records and documents included:

Contact Information

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Authorized Representative

Phone Number

685

Affiliation and Address

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APPENDIX 2– Model APA (based on Rev. Proc. 2015-41)

TEMPLATE FOR ADVANCE PRICING AGREEMENT

UNDER REVENUE PROCEDURE 2015-41

_______________

The Advance Pricing and Mutual Agreement Program (“APMA”) of the Internal Revenue Service (“IRS”) is providing this

template for use in drafting advance pricing agreements (“APAs”) issued under IRS Revenue Procedure 2015-41, 2015-35 I.R.B.

263 (“Rev. Proc. 2015-41”). This template is designed to systematize how taxpayers propose terms for their APAs and standardize

language used in executed APAs. It will improve efficiency in the APA process and enhance consistency in the administration of the

APA program.

Rev. Proc. 2015-41 requires that taxpayers include as part of a complete APA request a draft APA and a “redline” comparison of the

proposed draft APA against the current model APA. See section 2.03, exhibit 15, of the Appendix to Rev. Proc. 2015-41. This template

serves as the model APA. A taxpayer is required to produce the “redline” comparison by following the instructions below to edit this

template with tracked changes. The draft APA and “redline” comparison are then to be included in Word format in the complete APA

request. (Before editing the template with tracked changes, a taxpayer should remove this introduction and the instructions below

from the Microsoft Word file.)

The assigned APMA team will review the APA’s terms proposed in the draft APA. If the APMA team accepts the proposed terms

in light of its review of the taxpayer’s complete APA request and other information obtained during the APA process, then the text of

the draft APA, edited as needed to fill in any information not available at the time of the APA Request, will be adopted as the text of

a finally executed APA. If the APMA team does not accept the proposed terms, it will discuss modifications to the draft APA with the

taxpayer during the APA process. For bilateral and multilateral APAs, the terms of the executed APA will of necessity be consistent

with the terms of the underlying mutual agreement between the United States and one or more treaty partners.

GENERAL INSTRUCTIONS

The template is designed to minimize editing by using an options-based format for selecting from terms presented in certain sections of the model APA. The options presented are those which APMA considers standard and which it has accepted in final APAs.

These options are not binding on APMA, however. APMA reserves the right to modify the option selections, the specific option language used, or any other terms before executing an APA with the taxpayer.

Options are indicated by square brackets (“[]”). An “x” should be inserted between the brackets to indicate the selected option

(“[x]”). Options that are not selected should not be deleted, but instead should be left in the text of the draft APA. The options to which

APMA and the taxpayer ultimately agree for the final APA will be indicated by the presence or absence of an “x”. The term associated

with the “x” will be given operative effect in the executed APA.

Certain options are flagged with an asterisk after the square brackets (“[]*”). To facilitate the APMA team’s subsequent review of

the draft APA, the asterisks should not be deleted. Taxpayers that select flagged options are required to specifically provide justification for the selection in the APA request. See section 1.02, Part 5, of the Appendix to Rev. Proc. 2015-41.

The template contains placeholder phrases consisting of a hashtag followed by one or more words in block capital letters

(e.g., “#COUNTRY”). Generally, the taxpayer should replace a placeholder phrase with appropriate text, subject to the following

conventions:

•

If a placeholder phrase occurs within an option that the taxpayer has rejected, the taxpayer should change the hashtag to a

caret (e.g., change “#COUNTRY” to “^COUNTRY”) but otherwise leave the phrase intact.15 The caret indicates that the

Taxpayer has rejected this option. For example, for a bilateral APA with Japan, the lines on the first page just below the title

would read:

As a result, almost all occurrences of the hashtag in the template will be replaced with a caret or other text in the taxpayer’s draft APA. The few remaining occurrences of the hashtag will

mark a placeholder phrase that cannot yet be replaced with appropriate text (see, for example, the placeholder phrase in paragraph 6(e) for a date that cannot be determined until the APA nears

execution). Searching the draft APA for the hashtag will locate all placeholder phrases that still need replacement.

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[x] Bilateral with Japan

[] Multilateral with ^COUNTRIES

[] Unilateral

•

The placeholder phrase “#CURRENCY” should be replaced, for example, with “U.S. dollars,” “Euros,” or “Japanese yen.”

•

The placeholder phrase “#DATE” should be replaced with a date in the format of “December 31, 2020.”

The APA Term will be expressed as dates certain, e.g., “January 1, 2017 to December 31, 2022, inclusive”, rather than as particular

tax years.

Taxpayers may need to draft custom text for situations or options not included in the template. For example, a taxpayer may

propose additional critical assumptions to address specific regulatory contingencies or conditions the taxpayer is expected to face

during the term of the APA. As another example, the provision titled “Limitation on Assistance” at the end of the Recitals might be

modified based on an understanding reached in the prefiling stage of the APA process. In some cases, a particular critical assumption

might facilitate reaching an agreement on an APA. Taxpayers that include custom text are required to specifically provide justification

for the inclusion in the APA request, just as selecting an option with an asterisk requires justification. Any custom text must also be

evident in the “redline” comparison of the proposed draft APA.

INSTRUCTIONS ON TABLES

The template contains certain tables that the taxpayer should edit. Entries in the tables will not contain hashtags, but taxpayers

nevertheless should fill in the information and add additional rows to the tables if needed. Taxpayers also should fill in the “APA

Information” in the table in Appendix D, to the extent available or proposed.

INSTRUCTIONS ON APPENDIX A

Appendix A of this template contains the description of the APA’s covered issue(s) and covered method(s). Taxpayers should note

the following points in completing Appendix A:

•

The template includes just one covered issue with one corresponding covered method. If there is more than one covered

Issue proposed for the APA, the taxpayer should add additional covered issues in Appendix A, section 3, with tracked

changes.

•

If there is more than one covered method, the taxpayer should first replicate the template’s entire text for Covered Method

1 in Appendix A, section 4, without tracked changes, to provide template text for each additional covered method, and then

edit the text for each covered method with tracked changes.

•

Normally, each covered issue will have its own corresponding covered method. However, in some cases, a covered method

may apply at once to more than one covered issue. For example, covered issues may be proposed to be aggregated and tested

by a single covered method. In such cases, the heading for that covered method could read, for example, “Covered Method

for Covered Issues 1-3”.

•

Any interaction between different covered methods should be adequately explained in the text, and in an appropriate manner. For example, an explanation might be provided in an introduction at the start of section 4 of Appendix A, preceding the

description of the respective covered methods.

Appendix A uses the term “Tested Party.” When applied in the context of methods that consider, or test, data from only one party

to a transaction, this term is similar in concept to the term “tested party” as discussed in the OECD Guidelines at paragraphs 3.18

and 3.19, and as defined in the U.S. Treasury Regulations section 1.482-5(b)(2). However, some methods consider, or test, data from

both parties to a transaction, where there is no singular “tested” party. Even in applying such methods, however, it is typically the

case that one particular party’s results are formally tested for compliance with the method. For purposes of this template, in such

circumstances, the party whose results are formally tested in applying any particular method is the “Tested Party”, even if that party

is not strictly a “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, or as defined in the U.S. Treasury

Regulations section 1.482-5(b)(2).

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ADVANCE PRICING AGREEMENT

between

#SIGNATORY

and

THE INTERNAL REVENUE SERVICE

[] Bilateral with #COUNTRY

[] Multilateral with #COUNTRIES

[] Unilateral

Term: #DATE to #DATE, inclusive

[] This APA is commonly referred to as #APA NAME.

PARTIES

The Parties to this APA are the Internal Revenue Service (“IRS”) and #NAME OF EACH NON-IRS SIGNATORY, WITH EIN.

[]

#SIGNATORY will be referred to as “U.S. Taxpayer.”

[]

#SIGNATORY is the common parent of an affiliated group filing consolidated U.S. tax returns and is entering into this APA

on behalf of both itself and the following members of its consolidated group: #MEMBERS OF GROUP. All members of this

consolidated group will be referred to collectively as “U.S. Taxpayer.”

RECITALS

[]

This APA is a renewal of one or more prior APAs, which are listed below in reverse chronological order:

Party(ies)

Execution Date

Term

Key:

•

Party(ies): The signatory(ies) to the prior APA, other than the IRS, with each signatory’s taxpayer identification number;

•

Execution Date: The date, or the later of the dates, on which the prior APA was executed;

•

Term: The term of the prior APA.

[]

This is a bilateral APA within the meaning of Rev. Proc. 2015-41 and implements the terms of a mutual agreement reached

between the United States and #COUNTRY.

[]

This is a multilateral APA within the meaning of Rev. Proc. 2015-41 and implements the terms of a mutual agreement reached

among the United States, #COUNTRIES.

[]

This APA is a unilateral APA within the meaning of Rev. Proc. 2015-41 and is not based on any mutual agreement.

The Parties to this APA are defined in the ”Parties” section above. Regarding the Party(ies) to this APA other than the IRS:

[]

No such Party has an immediate parent or owner that is not a U.S. entity.

[]

One or more such Parties has an immediate parent or owner that is not a U.S. entity, as follows:

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Party

Parent’s or Owner’s

Identifying Information

Parent’s or Owner’s

Contact Information

Key:

•

Party: Name of the Party having an immediate parent or owner that is not a U.S. entity;

•

Parent’s or Owner’s Identifying Information: Name of the immediate parent or owner of such Party, and the taxpayer

identification number of that parent or owner for income tax purposes in its country of residence;

•

Parent’s or Owner’s Contact Information: The immediate parent’s or owner’s address and phone number.

The term “Worldwide Group” is defined below in paragraph 12 of this APA. The ultimate parent entity or owner of Worldwide

Group is:

#ENTITY NAME, ADDRESS, AND PHONE

U.S. Taxpayer’s principal place of business is #CITY, #STATE. #BRIEF DESCRIPTION OF U.S. TAXPAYER AND NON-U.S.

TAXPAYER (DEFINED IN SECTION 1 OF APPENDIX A), AND SPECIFICALLY OF EACH COVERED ENTITY (DEFINED

IN SECTION 1 OF APPENDIX A).

This APA contains the Parties’ agreement on the Covered Method(s) for resolving the Covered Issue(s) under Code section 482 and

any other Code sections that are identified in Appendix A to this APA, the U.S. Treasury Regulations thereunder, and (if applicable):

[]

The income tax convention(s) between the United States and #COUNTRY(IES).

This APA shall not limit the authority of the IRS to (1) verify compliance with this APA as to the Covered Issue(s), or (2) audit

issues other than Covered Issue(s), including issues that arise under Code section 482 and any other Code sections identified in

Appendix A to this APA, and the U.S. Treasury Regulations thereunder.

LIMITATION ON ASSISTANCE

The Covered Issue(s) may relate to one or more countries which (i) have an income tax convention with the United States, but

(ii) are not a party to a mutual agreement whose terms are implemented by this APA. U.S. Taxpayer acknowledges that the IRS may

decline to provide competent authority assistance concerning taxation by such country(ies) that relates to the Covered Issue(s). See

section 2.02(4)(d) of Rev. Proc. 2015-41.

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AGREEMENT

The Parties agree as follows:

Covered Entities. This APA’s Covered Entities are defined in Appendix A.

Covered Issue(s). This APA applies to the Covered Issue(s), as defined in Appendix A.

Covered Method(s). Appendix A sets forth the Covered Method(s) for the Covered Issue(s).

Term. This APA applies to the APA Term, as defined in Appendix A.

Operation.

Rev. Proc. 2015-41 governs the interpretation, legal effect, and administration of this APA.

The APMA program provides a voluntary process whereby the IRS and taxpayers may resolve transfer pricing issues and

issues for which transfer pricing principles may be relevant in a principled and cooperative manner on a prospective basis.

As such, the APA process (as defined in Rev. Proc. 2015-41) is an alternative to dispute resolution that benefits both taxpayers and the IRS and that is intended to promote and encourage open communication. Accordingly, the IRS and U.S. Taxpayer

agree that neither party will attempt to use nonfactual oral or written representations, within the meaning of sections 6.04 and

6.05 of IRS Revenue Procedure 2015-41 (including any proposals to use particular Covered Method(s)), made in conjunction with the APA Request in any judicial or administrative proceeding. The IRS and U.S. Taxpayer also agree that factual

representations made in conjunction with the APA Request may be used in judicial and administrative proceedings.

Compliance.

U.S. Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of

this APA. U.S. Taxpayer must so report its taxable income in the following manner:

For any APA Tax Year for which U.S. Taxpayer timely files its original U.S. return prior to, or no later than 60 days after,

the U.S. Effective Date, U.S. Taxpayer must so report its taxable income for that APA Tax Year in one of the following

ways:

A. on such original U.S. return;

B. on an amended U.S. return submitted no later than 120 days after the U.S. Effective Date;

C. through a means proposed by U.S. Taxpayer and accepted by the applicable IRS practice area no later than 120 days

after the U.S. Effective Date (or by such other deadline as is agreed between U.S. Taxpayer and the applicable IRS

practice area); or

D. if applicable:

[]* no later than 120 days after the U.S. Effective Date through the following means: #DESCRIPTION OF

MEANS.

ii. For all other APA Tax Years, U.S. Taxpayer must so report its taxable income on its timely filed original U.S. return.

iii. The provisions of paragraphs 6(a)(i) and 6(a)(ii) are modified by this paragraph 6(a)(iii). If a Covered Method includes

a term test (including the case of an annual test with a supplemental term test) or a subterm test, as described in section

4 of Appendix A, then the APA Covered Year as of which the term test or subterm test applies would change in the event

of an Early Termination. Specifically, while in the absence of an Early Termination a term test would apply as of the last

APA Covered Year, in the event of an Early Termination the term test would apply as of an earlier APA Covered Year.

Similarly, while in the absence of an Early Termination a subterm test would apply as of the last APA Covered Year in

the subterm, in the event of an Early Termination the subterm test might apply as of an earlier APA Covered Year. In

these situations, the Early Termination might not be established in time for U.S. Taxpayer to know to apply the term test

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or subterm test as of the earlier APA Covered Year in reporting taxable income as required under paragraphs 6(a)(i) and

6(a)(ii) for the APA Tax Year corresponding to that earlier APA Covered Year. In such cases, U.S. Taxpayer may need to

correct its reporting for that APA Tax Year. Specifically, U.S. Taxpayer will need to correct its income reporting for that

APA Tax Year if the application of the term test or subterm test in that earlier APA Covered Year changes the existence

or amount of an APA Primary Adjustment for the Covered Method for that APA Tax Year. In such cases:

A) The resulting incorrectness in the prior reporting for that APA Tax Year is excused; and

B) U.S. Taxpayer must correct such prior reporting through a means listed in paragraph 6(a)(i) within 120 days of the

Early Termination being established.

For each Covered Issue, if any, that involves determination of pricing and/or income allocation16 under Code section

482 (or Code section 367(d)) as modified by any applicable income tax convention, this APA addresses the pricing and/

or income allocation between U.S. Taxpayer and Non-U.S. Taxpayer in the aggregate. Except as explicitly provided,

this APA does not address and does not bind the IRS with respect to pricing or income allocation (1) among particular

legal entities that are members of U.S. Taxpayer, or (2) among particular legal entities that are members of Non-U.S.

Taxpayer. In addition, this APA does not address pricing or income allocation between an entity that is not a Covered

Entity, and any entity.

For each APA Tax Year, if U.S. Taxpayer complies with the terms and conditions of this APA, then, provided that this

APA remains effective for that APA Tax Year for a particular Covered Issue, the IRS will not make or propose any allocation or adjustment that is inconsistent with the application under this APA of the applicable Covered Method to that

Covered Issue.

If U.S. Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:

enforce the terms and conditions of this APA and make or propose allocations or adjustments based on the application of the Covered Method(s) to the Covered Issue(s) as provided in this APA;

ii. cancel or revoke this APA under section 7.06 of Rev. Proc. 2015-41; or

iii. revise this APA, if the Parties agree.

U.S. Taxpayer must timely file an Annual Report for each APA Tax Year in accordance with this paragraph 6(e),

Appendix C to this APA, and section 7.02 of Rev. Proc. 2015-41. Annual Reports for multiple APA Tax Years may be

combined, provided that all required information for each APA Tax Year is clearly presented. For each Annual Report,

U.S. Taxpayer must submit an original printed version containing a signed original “penalties of perjury” declaration,

one printed copy of the contents of the original printed version, and an electronic copy of the contents of the original

printed version. Any exhibits in the printed version must be tabbed, and the electronic copy is subject to the same

requirements, as to medium and format, that are specified for APA requests in section 2 of the Appendix to Rev. Proc.

2015-41. Upon request, U.S. Taxpayer must provide additional copies of the printed version, at addresses specified by

the IRS. U.S. Taxpayer must file the Annual Report for each APA Tax Year by the later of (i) #DATE CERTAIN, NORMALLY APPROXIMATELY 90 DAYS AFTER THE U.S. EFFECTIVE DATE, and (ii) the fifteenth day of the twelfth

month following the close of the APA Tax Year. The IRS may by notice request additional information reasonably necessary to clarify or complete the Annual Report. (See paragraph 16, and section 3(c) of Appendix C, regarding notices.)

U.S. Taxpayer will provide such requested information within 30 days from the date of the notice unless a later date is

specified in the notice. Additional time may be allowed for good cause in the discretion of the Director of the Advance

Pricing and Mutual Agreement Program.

The IRS will determine whether U.S. Taxpayer has complied with this APA based on U.S. Taxpayer’s U.S. returns, the

Financial Statements and additional statements required under this paragraph 6(f), and other APA Records, for all APA

Tax Years and any other tax year necessary to verify compliance. The Financial Statements and additional statements

required for a particular tax year are:

As used in this APA, "income allocation" includes allocation of loss.

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[]

For every U.S. Covered Entity, the Financial Statements together with the additional statements specified in

paragraph 6(f)(i); and for every Non-U.S. Covered Entity, the Financial Statements together with the additional

statements specified in paragraph 6(f)(ii).

[]* For every U.S. Covered Entity, the Financial Statements together with the additional statements specified in paragraph 6(f)(i).

[]* For every Non-U.S. Covered Entity, the Financial Statements together with the additional statements specified in

paragraph 6(f)(ii).

For each U.S. Covered Entity, the additional statements consist of the following statement(s):

[]

An audit opinion for that U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]* One or more of the following, as indicated:

[]

An accountant’s report for that U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]

A self-certification for that U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]

A self-certification for that U.S. Covered Entity’s Financial Statements, together with a tying certification for

that entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]

#OTHER MEANS OF VERIFYING THE RELIABILITY OF THE U.S. COVERED ENTITY’S FINANCIAL STATEMENTS.

ii. For each Non-U.S. Covered Entity, the additional statements consist of the following statement(s):

[]

An audit opinion for that Non-U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]* One or more of the following, as indicated:

[]

An accountant’s report for that Non-U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)

(iii).

[]

A self-certification for that Non-U.S. Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]

A self-certification for that Non-U.S. Covered Entity’s Financial Statements, together with a tying certification

for that Covered Entity’s Financial Statements, as defined in paragraph 6(f)(iii).

[]

#OTHER MEANS OF VERIFYING THE RELIABILITY OF THE NON-U.S. COVERED ENTITY’S

FINANCIAL STATEMENTS.

iii. With reference to the Financial Statements for a particular Covered Entity for a particular tax year, certain terms used

in paragraphs 6(f)(i) and 6(f)(ii) are defined as follows:

A. An audit opinion is an opinion of an independent certified public or chartered accountant who audited the Financial

Statements.

B. An accountant’s report is a report of an independent certified public or chartered accountant who is associated with

the Financial Statements.

C. A self-certification is an attestation, as defined in paragraph 6(f)(iii)(E), that the Financial Statements have been

prepared according to the Applicable Accounting Standard.

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D. A tying certification consists of the following:

(1) An attestation, as defined in paragraph 6(f)(iii)(E), that the Financial Statements can be reconciled to the consolidated Financial Statements for that entity’s direct or indirect parent according to workpapers provided with

the attestation;

(2) The workpapers referred to in paragraph 6(f)(iii)(D)(1), which must demonstrate the consolidation of the Covered Entity’s Financial Statements into the Financial Statements of the parent referred to in paragraph 6(f)(iii)

(D)(1);

(3) The Financial Statements of the parent referred to in paragraph 6(f)(iii)(D)(1); and

(4) An audit opinion (as defined in paragraph 6(f)(iii)(A)) for the Financial Statements of the parent referred to in

paragraph 6(f)(iii)(D)(1).

E. An attestation is an affirmation by an officer of the Covered Entity in the following form:

I, [Officer’s Name and Title], of [Name of Covered Entity] affirm under penalties of perjury that the facts

stated below are true. I either have adequate first-hand knowledge to make this affirmation or have gained

adequate knowledge to make this affirmation through diligent consultation(s) with one or more individuals

who have first-hand knowledge.

[Facts attested to.]

[Signature]

In accordance with section 7.04 of Rev. Proc. 2015-41, U.S. Taxpayer will (1) maintain the APA Records, and (2) make

them available to the IRS in connection with an examination under section 7.03 of Rev. Proc. 2015-41. Compliance with

this subparagraph constitutes compliance with the record-maintenance provisions of Code sections 6038A and 6038C for

the Covered Issue(s) for any APA Covered Year.

The “true taxable income” within the meaning of U.S. Treasury Regulations sections 1.482-1(a)(1) and (i)(9) of a member

of an affiliated group filing a U.S. consolidated return will be determined under the U.S. Treasury Regulations under Code

section 1502.

To the extent that U.S. Taxpayer’s compliance with this APA depends on certain acts of other members of Worldwide Group,

U.S. Taxpayer will ensure that such other members will perform such acts.

Critical Assumptions. The Critical Assumptions, which are this APA’s critical assumptions as defined in Rev. Proc. 2015-41,

appear in Appendix B. If any Critical Assumption has not been met, then Rev. Proc. 2015-41, section 7.06, governs, as modified

by Appendix B to this APA.

Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return

information” under Code section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under Code

section 6110(b)(1). Section 521(b) of Pub. L. 106-170 provides that the Secretary of the Treasury must prepare a report for public

disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does

not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.

Disputes. If a dispute arises concerning the interpretation or application of this APA, the Parties will seek a resolution by the

Director, Treaty and Transfer Pricing Operations, to the extent reasonably practicable, before seeking alternative remedies.

10. Materiality. In this APA the terms “material” and “materially” will be interpreted in a manner consistent with the description of

“material facts” in Rev. Proc. 2015-41, section 7.06(4).

11. Paragraph Captions. This APA’s paragraph captions, which appear in italic type, are for convenience and reference only. The

captions do not affect in any way the interpretation or application of this APA.

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12. Terms and Definitions.

Unless otherwise specified, terms in the plural include the singular and vice versa.

Appendix A contains definitions for certain terms used in this APA’s body and appendices.

Certain terms used in this APA’s body and appendices are defined as follows:

Term

Annual Report

Advance Pricing

Agreement, or “APA”

APA Records

APA Request

Critical Assumptions

Financial Statements

Non-U.S. Group

Parties

Pub. L. 106-170

U.S. Effective Date

U.S. Group

Worldwide Group

Definition

A report within the meaning of Rev. Proc. 2015-41, section 7.02.

An “advance pricing agreement” within the meaning of Rev. Proc. 2015-41, section 2.02. Unless context

indicates otherwise, “this APA” or “the APA” denotes the particular APA that is executed below.

(Defined in Appendix C.)

U.S. Taxpayer’s request for this APA, which was dated #DATE, including any amendments or

supplemental or additional information thereto (including but not limited to any responses to due

diligence questions).

(Defined in paragraph 7.)

Balance sheet, income statement, statement of cash flow, and explanatory notes, prepared in accordance

with the Applicable Accounting Standard as defined in section 7 of Appendix A.

In any APA Tax Year, Worldwide Group members that are not U.S. persons.

(Defined in the Recitals near the start of this APA.)

The Ticket to Work and Work Incentives Improvement Act of 1999.

(Defined in paragraph 17 and in section 7 of Appendix A. Those definitions are intended to have the

same meaning. In case of conflict, the definition in paragraph 17 controls.)

In any APA Tax Year, Worldwide Group members that are U.S. persons.

In any APA Tax Year, U.S. Taxpayer and all organizations, trades, businesses, entities, or branches

(whether or not incorporated, organized in the United States, or affiliated) owned or controlled directly

or indirectly by the same interests.

13. Deadline References. If a deadline under this APA falls on a Saturday, Sunday, or a legal holiday in the District of Columbia, the

deadline is extended to the next succeeding day that is not a Saturday, Sunday, or legal holiday in the District of Columbia.

14. Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever, delete,

or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.

15. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to U.S. Taxpayer.

16. Notice. Any notices required by this APA or Rev. Proc. 2015-41 must be in writing. U.S. Taxpayer will send notices to the IRS

at:

Commissioner, Large Business and International Division

Internal Revenue Service

1111 Constitution Avenue, NW

SE:LB:TTPO:APMA:NCA534-01

Washington, DC 20224

(Attention: APMA)

The IRS will send notices to:

# NAME AND ADDRESS

(phone: #PHONE)

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The IRS also will send notices to, if applicable:

[] #REPRESENTATIVE’S NAME AND ADDRESS

(phone: #PHONE)

provided that a valid IRS Form 2848 “Power of Attorney and Declaration of Representative” for that person was included in the

most recent Annual Report (or, if no Annual Report has been filed, was included in the APA Request).

17. U.S. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties

execute this APA (“U.S. Effective Date”). The Parties may execute this APA in counterparts, with each counterpart constituting

an original.

WITNESS,

The Parties have executed this APA on the dates below.

#SIGNATORY NAME IN BOLD FACE BLOCK CAPITAL LETTERS

By:

__________________________Date: _________________, 20____

#NAME

#TITLE

INTERNAL REVENUE SERVICE

By:

__________________________Date: _________________, 20____

John M. Wall

Acting Director, Advance Pricing and Mutual Agreement Program

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APPENDIX A

COVERED ENTITIES, TERM, COVERED ISSUE(S), COVERED METHOD(S), INCOME REPORTING,

CONFORMING ADJUSTMENTS AND REPATRITION OF FUNDS,

CERTAIN SUBSEQUENT ADJUSTMENTS,

AND DEFINITIONS

Section 1 of this Appendix lists the Covered Entities. Section 2 defines the APA Term, APA Tax Years, and APA Covered Years.

Section 3 describes the Covered Issue(s). Section 4 describes the Covered Method applicable to each Covered Issue.

Section 5 describes the application of the Covered Method(s) to income reporting and the possible need for an APA Primary

Adjustment under one or more Covered Methods. Section 6 addresses conforming adjustments and repatriation of funds following

APA Primary Adjustments.

Section 7 provides definitions that apply both to this Appendix and to the APA as a whole. The definitions table is based on a standard, inclusive model, and thus may include terms not used in this APA.

Covered Entities

The U.S. Covered Entity(ies) are:

#LIST OF EACH U.S. ENTITY INVOLVED IN ONE OR MORE COVERED ISSUE(S), AND ALSO (LISTED FIRST)

ANY CONSOLIDATED RETURN PARENT FOR ANY SUCH ENTITY. FOR EACH ENTITY, NAME, ADDRESS,

PHONE, AND EIN.

The term “U.S. Taxpayer” includes collectively all U.S. Covered Entities and any other entities that are in a consolidated return

group with a U.S. Covered Entity.

The Non-U.S. Covered Entity(ies) are:

# LIST OF EACH NON-U.S. ENTITY INVOLVED IN ONE OR MORE COVERED ISSUE(S), AND ALSO (LISTED

FIRST) ANY COMMON TAX REPORTING PARENT FOR ANY SUCH ENTITY. FOR EACH ENTITY, NAME,

ADDRESS, AND PHONE.

The term “Non-U.S. Taxpayer” includes collectively all Non-U.S. Covered Entities and any other entities that are in a common tax

reporting group with a Non-U.S. Covered Entity.

The term “Covered Entities” includes both the U.S. Covered Entities and the Non-U.S. Covered Entities.

APA Term, APA Tax Years, and APA Covered Years

The APA applies to the period from #DATE to #DATE, inclusive (the “APA Term”).

[]

The APA Term does not include a Rollback.

[]

The APA Term includes a Rollback, which covers from #DATE to #DATE, inclusive (the “Rollback Period”).

A tax year of U.S. Taxpayer that is wholly or partly contained in the APA Term is called an “APA Tax Year.” For a particular APA

Tax Year, the portion of such APA Tax Year that is contained in the APA Term is called an “APA Covered Year.” Such APA Tax Year

and APA Covered Year are said to “correspond” to each other or to be “corresponding.”

Covered Issue(s)

The Covered Issue(s) are as described below.

Covered Issue 1:

#DESCRIPTION OF COVERED ISSUE.

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Covered Method(s)

Each Covered Method applies to one or more Covered Issues. A Covered Method and the Covered Issue(s) to which the Covered

Method applies are said to “correspond,” or to be “corresponding”.

The Covered Methods are summarized in the following table and are described in detail below. In case of conflict with this table,

the detailed descriptions of the Covered Methods below, and the descriptions in section 3 above of the Covered Issues, control.

Covered Method

Number

Applies to Covered

Issues Number(s)

Summary Description of

Corresponding Covered

Issues

Type of Method;

Results Tested

Point or

Range

Testing Frequency

and Periods

This Appendix A uses the term “Tested Party.” When applied in the context of methods that consider, or test, data from only one

party to a transaction, this term is similar in concept to the term “tested party” as discussed in the OECD Guidelines paragraphs 3.18

and 3.19, and as defined in the U.S. Treasury Regulations section 1.482-5(b)(2). However, some methods consider, or test, data from

both parties to a transaction, where there is no singular “tested” party. Even in applying such methods, however, it is typically the

case that one particular party’s results are formally tested for compliance with the method. For purposes of this template, in such

circumstances, the party whose results are formally tested in applying any particular method is the “Tested Party”, even if that party

is not strictly a “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, or as defined in the U.S. Treasury

Regulations section 1.482-5(b)(2).

Covered Method for Covered Issue 1:

Tested Party

The Tested Party is #TESTED PARTY.

b. Financial Results Tested (Type of Method)

[]

The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and

of the comparable uncontrolled price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be

tested are:

[]

per unit price paid, defined as the total amount paid for #DESCRIPTION OF GOODS divided by the number of

#DESCRIPTION OF A UNIT OF GOODS purchased.

[]

per unit price received, defined as the total amount received for #DESCRIPTION OF GOODS divided by the number

of #DESCRIPTION OF A UNIT OF GOODS sold.

The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of

the comparable uncontrolled services price method under the U.S. Treasury Regulations. The Tested Party’s financial results

to be tested are:

[]

per unit price paid, defined as the total amount paid for #DESCRIPTION OF SERVICES divided by the number of

#DESCRIPTION OF A UNIT OF SERVICES received.

[]

per unit price received, defined as the total amount received for #DESCRIPTION OF SERVICES divided by the number

of #DESCRIPTION OF A UNIT OF SERVICES provided.

The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and

of the comparable uncontrolled transaction method under the U.S. Treasury Regulations. The Tested Party’s financial results

to be tested are the royalty paid for the license of #DESCRIPTION OF LICENSED INTANGIBLE PROPERTY divided by

the Tested Party’s:

[]

sales revenue from sales of #DESCRIPTION OF GOODS/SERVICES.

[]

#OTHER ROYALTY BASE.

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[]

The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and

of the acquisition price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are

described in subsection (c) below.

[]

The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and

of the market capitalization method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are

described in subsection (c) below.

[]

The Covered Method is an implementation of the resale price method under the OECD Guidelines and of the resale price

method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross profit margin from

the sale of #DESCRIPTION OF GOODS.

[]

The Covered Method is an implementation of the resale price method under the OECD Guidelines and of the gross services

margin method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross services

margin from the provision of #DESCRIPTION OF SERVICES.

[]

The Covered Method is an implementation of the cost plus method under the OECD Guidelines and of the cost plus method

under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross profit markup.

[]

The Covered Method is an implementation of the cost plus method under the OECD Guidelines and of the cost of services

plus method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross services

profit markup from the provision of #DESCRIPTION OF SERVICES.

[]

The Covered Method is based on the principles of the low value-adding intra-group services approach under the OECD

Guidelines and of the services cost method under the U.S. Treasury Regulations. The Tested Party’s financial results to be

tested are the markup on total costs for providing #DESCRIPTION OF SERVICES.

[]

The Covered Method is an implementation of the transactional net margin method under the OECD Guidelines and of the

comparable profits method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested, as reflected

in its net profit indicator (per OECD Guidelines) or profit level indicator (per U.S. Treasury Regulations), are its:

[]

operating margin.

[]

markup on total costs.

[]

Berry ratio.

[]

return on operating assets.

[]

return on invested capital.

[]* #OTHER NET PROFIT INDICATOR OR PROFIT LEVEL INDICATOR, WITH DEFINITION.

[]

The Covered Method is an implementation of the profit split (residual analysis) method under the OECD Guidelines and

of the residual profit split method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are

described in subsection (c) below.

[]

The Covered Method is an implementation of the profit split (contribution analysis) method under the OECD Guidelines and

of the comparable profit split method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested

are described in subsection (c) below.

[]

The Covered Method is an implementation of an income based valuation technique as referenced in paragraph 6.153 of the

OECD Guidelines and of the income method under the U.S. Treasury Regulations. The Tested Party’s financial results to be

tested are described in subsection (c) below.

[]

The Covered Method is an implementation of (i) a sharing of the cost of current contributions in proportion to overall

expected benefits, within a cost contribution arrangement under the OECD Guidelines, and (ii) a sharing of intangible devel-

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opment costs in proportion to reasonably anticipated benefits, within a cost sharing arrangement under the U.S. Treasury

Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[]

The Covered Method is a method that is not specified under the OECD Guidelines and not specified under the U.S. Treasury

Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

Such financial results are determined according to the Applicable Accounting Standard, with the proviso that in determining such

results, accounting principles and conventions that are generally accepted in the trade or industry must be used.

Such financial results are tested against a point or range as described below. The test is carried out with a frequency, and for certain time periods, as described below. If and when these financial results do not satisfy the test, they must be adjusted as described in

section 5 of this Appendix A.

Testing of Financial Results Against a Point or Range

The Tested Party’s financial results are tested as follows:

[]

The financial results must equal #X.

[]

The financial results must be within an Arm’s Length Range.

[]

The Arm’s Length Range is from #X to #Y inclusive.

[]

This Arm’s Length Range has an associated Median value of #Z.

[]

This Arm’s Length Range has no associated Median value.

Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the annual test described in subsection (d) below. The second is from #Y to #Z inclusive and applies to the term test described in subsection (d) below.

[]

The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an

associated Median value of #Q.

[]

These Arm’s Length Ranges have no associated Median value.

Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the subterm test described in

subsection (d) below. The second is from #Y to #Z inclusive and applies to the annual test described in subsection (d)

below.

[]

The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an

associated Median value of #Q.

[]

These Arm’s Length Ranges have no associated Median value.

Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the test for the first subterm

described in subsection (d) below. The second is from #Y to #Z inclusive and applies to the test for the second subterm

described in subsection (d) below.

[]

The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an

associated Median value of #Q.

[]

These Arm’s Length Ranges have no associated Median value.

#OTHER DESCRIPTION, FOR EXAMPLE THE EVALUATION AND TESTING MECHANICS FOR A PROFIT SPLIT,

AN INCOME METHOD, AN UNSPECIFIED METHOD, OR A SHARING OF COSTS UNDER A COST CONTRIBUTION ARRANGMENT/COST SHARING ARRANGEMENT.

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d. Testing Frequency and Testing Periods

The Tested Party’s financial results are tested as of certain APA Covered Years, and for certain time periods, as follows:

[]

The results are tested annually, meaning that they are tested as of each APA Covered Year, for a period consisting of that APA

Covered Year.

[]

There is no additional term test.

[]

There is an additional term test. For this test, the results are tested as of the Last Effective APA Covered Year, for the

period consisting of the Last Effective APA Covered Year and all prior APA Covered Years.

The application of the annual test and the application of the additional term test are coordinated as described in section 5 of this

Appendix A.

[]* The results are tested on a term basis, meaning that they are tested only once, as of the Last Effective APA Covered Year, for

a period consisting of the Last Effective APA Covered Year and all prior APA Covered Years.

[]* The results are tested on the basis of two subterms. For this purpose, the APA Term is divided into two subterms. The first

subterm consists of all APA Covered Years ending on or before #DATE, and the second subterm consists of all other APA

Covered Years. For each subterm, the results are tested as of the Last Effective APA Subterm Covered Year, for a period

consisting of the Last Effective APA Subterm Covered Year and all prior APA Covered Years in the subterm.

[]* The results are tested on a subterm basis for all APA Covered Years ending on or before #DATE (the “subterm”), and are

tested annually for each other APA Covered Year, as follows:

The results are tested as of the Last Effective APA Subterm Covered Year, for a period consisting of the Last Effective APA Subterm Covered Year and all prior APA Covered Years in the subterm.

The results are tested as of each APA Covered Year that is not in the subterm, for a period consisting of that APA Covered Year.

[]* The results are tested on a cumulative basis, meaning that (except as provided in the following sentence) they are not tested

as of the first APA Covered Year but they are tested as of each other particular APA Covered Year for a period consisting of

such particular APA Covered Year and all prior APA Covered Years. However, if the Last Effective APA Covered Year is

the first APA Covered Year, then the results are tested as of the first APA Covered Year, for a period consisting of such APA

Covered Year.

[]* The results are tested on a three-year rolling average basis, meaning that the results are tested as of each APA Covered Year,

for a period consisting of the APA Tax Year corresponding to the APA Covered Year (but excluding any portion of that APA

Tax Year that is after the APA Term), and the Tested Party’s two preceding tax years.

e. Other Provisions

The Tested Party’s financial results, to be tested as described above, are for:

[]

The Tested Party as a whole.

[]

Only a segment of the Tested Party’s activity. #DETAILED DESCRIPTION OF THE SEGMENT AND OF THE ALLOCATION AND APPORTIONMENT METHODS USED, INCLUDING ANY APPLICABLE FORMULAS AND

DEFINITIONS OF QUANTITIES USED IN THOSE FORMULAS. THIS DESCRIPTION SHOULD BE DETAILED

ENOUGH TO ENABLE A STRAIGHTFORWARD VERIFICATION OF COMPLIANCE BY THE IRS EXAMINATION

TEAM.

When the Tested Party’s financial results are tested as of a given APA Covered Year, those results shall reflect, to the extent

relevant, any APA Primary Adjustment for this Covered Method made under section 5 of this Appendix A for the APA Tax Year corresponding to any prior APA Covered Year.

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For this Covered Method, if applicable:

[]* For APA Covered Years ending on or before #DATE, it is agreed that this Covered Method, yields financial results as shown

below, and that any APA Primary Adjustments under section 5 of this Appendix A are as shown below.

#TEXT AND/OR TABLES SHOWING THE FINANCIAL RESULTS, THE TESTING OF THOSE FINANCIAL RESULTS

UNDER THE COVERED METHOD, AND ANY RESULTING APA PRIMARY ADJUSTMENTS.

For this Covered Method, if applicable:

[]

This Covered Method addresses the pricing for a transfer of intangible property (which does not constitute a platform contribution transaction as defined in U.S. Treasury Regulations section 1.482-7(b)(1)(ii)) within the meaning of U.S. Treasury

Regulations section 1.482-4. That pricing will not be subject to periodic adjustments by the IRS, during or after the APA

Term, under U.S. Treasury Regulations section 1.482-4(f)(2) or (6).

[]

This Covered Method addresses the pricing for a platform contribution transaction (“PCT”). That PCT will not be treated

as a Trigger PCT within the meaning of U.S. Treasury Regulations section 1.482-7(i)(6)(i) for purposes of making periodic

adjustments, during or after the APA Term, under U.S. Treasury Regulations section 1.482-7(i)(6).

Application of Covered Method(s) to Income Reporting

For each APA Tax Year, and for each Covered Method and corresponding Covered Issue(s), the amounts reported by U.S.

Taxpayer and Non-U.S. Taxpayer for income tax purposes under the laws of the United States and #COUNTRY(IES) must

clearly reflect the Tested Party’s actual transactions, allocations, and/or recordkeeping, as applicable, that relate to such Covered

Issue(s), adjusted as necessary to conform with section 4 of this Appendix A. Accordingly, for each particular APA Tax Year and

corresponding APA Covered Year, and for each such Covered Method:

If the Tested Party’s financial results are tested as of such APA Covered Year and do not conform with section 4 of this

Appendix A, then the tax reporting for such APA Tax Year must clearly reflect an adjustment that brings such results into

conformance (an “APA Primary Adjustment”). If section 4 of this Appendix A specifies conformance to an Arm’s Length

Range, then the adjustment shall be to:

[]

the Median.

[]* the near edge of the Arm’s Length Range.

[]* the Median for Covered Issues #SPECIFY WHICH ONES, and the near edge of the Arm’s Length Range for Covered

Issues #SPECIFY WHICH ONES.

ii. If an adjustment is not required under paragraph (i) above, then the tax reporting must clearly reflect the Tested Party’s

financial results, with no adjustment. In this case there is no APA Primary Adjustment.

iii. If both an annual test and an additional term test apply under such Covered Method, and such APA Covered Year is the Last

Effective APA Covered Year, so that as of such APA Covered Year the Tested Party’s financial results are tested under both

the annual test and the term test, then paragraphs (i) and (ii) above are modified by this paragraph (iii), which coordinates

the application of both tests. As explained in more detail below, the annual test is applied first, followed by the term test.

Specifically, the need for and amount of any APA Primary Adjustment for such APA Covered Year will be determined as

follows:

A. First apply paragraphs (i) and (ii) above under the assumption that only the annual test applies. Any required adjustment

will be referred to as the “annual adjustment” rather than an “APA Primary Adjustment.” If there is no required adjustment, the annual adjustment is considered to be zero.

B. Next, apply paragraphs (i) and (ii) above to the Tested Party’s financial results as adjusted by any nonzero annual

adjustment, under the assumption that only the term test applies to those results. Any required adjustment under this

application of paragraphs (i) and (ii) will be referred to as the “term adjustment” rather than an “APA Primary Adjustment.” If there is no such required adjustment, the term adjustment is considered to be zero.

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C. Add the annual adjustment and term adjustment, taking account of the magnitude and (if nonzero) direction of each. If

this sum is zero, there is no APA Primary Adjustment for such APA Covered Year. If this sum is nonzero, this sum gives

the magnitude and direction of the APA Primary Adjustment for such APA Covered Year. Any APA Primary Adjustment,

or the lack of an APA Primary Adjustment, must be clearly reflected in the tax reporting for such APA Tax Year (see

paragraphs (i) and (ii) above).

iv. If this APA is unilateral and such APA Covered Year is within the Rollback Period, then:

[]

Paragraphs (i)-(iii) above notwithstanding, an APA Primary Adjustment will not be made if that APA Primary Adjustment would decrease the income of U.S. Taxpayer for such APA Tax Year.

[]* Paragraphs (i)-(iii) above apply without modification.

If indicated, the above provisions on APA Primary Adjustments are modified as follows:

[]* Any APA Primary Adjustment that would be made under the above provisions for an APA Tax Year ending before #DATE

will instead be made for the APA Tax Year ending #THE SAME DATE (the “Telescoping Year”). For each particular Covered Method, all APA Primary Adjustments that are made for the Telescoping Year (including any APA Primary Adjustments

that are moved to the Telescoping Year as just described, as well as any APA Primary Adjustment originally made for the

Telescoping Year) are netted.

[]

The foregoing provision applies without modification.

[]

The foregoing provision applies with the following modification. An APA Primary Adjustment that is thus moved from

a particular APA Tax Year (the “Original Year”) to the Telescoping Year shall be increased in amount to reflect the time

value of money. That increase will consist of multiplication by a factor that is an annual rate raised to a power. The

annual rate is 1.#XY. The power is the quotient of (i) the average of the number of months by which the end of the Telescoping Year is later than the end of the Original Year, and the number of months by which the start of the Telescoping

Year is later than the start of the Original Year (with any fractions of months rounded to whole months), (ii) divided by

twelve.

For U.S. tax purposes, the generally applicable Code rules will apply with respect to APA Primary Adjustments, except as otherwise provided in Rev. Proc. 2015-41 or in this APA.

Conforming Adjustments and Repatriation of Funds

The provisions in this section 6 apply to “Repatriable Issues,” which are Covered Issues that concern transactions between associated enterprises that fall under Article 9 of the OECD Model Tax Convention. Such transactions correspond to transactions that

under U.S. law are subject to application of Code section 482, as modified by any applicable treaty provision.

If the application of a Covered Method to a Repatriable Issue requires an APA Primary Adjustment under section 5 of this Appendix A for a given APA Tax Year, then for U.S. tax purposes there generally must be a corresponding conforming adjustment as

specified in U.S. Treasury Regulations section 1.482-1(g)(3) as amplified by Rev. Proc. 99-32 or any successor revenue procedure. However, for this purpose, all APA Primary Adjustments for such APA Tax Year arising from the application of a Covered

Method to a Repatriable Issue are first netted to yield a net APA Primary Adjustment for such APA Tax Year. Only if the net APA

Primary Adjustment is nonzero is a conforming adjustment required.

For each APA Tax Year with a nonzero net APA Primary Adjustment, for U.S. tax purposes the conforming adjustment will be

accomplished in the following steps:

The conforming adjustment will be accomplished between #U.S. ENTITY and #NON-U.S. ENTITY, which will be referred

to here as “U.S. Entity” and “Non-U.S. Entity”, respectively. An intercompany payable will be established between U.S.

Entity and Non-U.S. Entity in the amount and direction of the net APA Primary Adjustment, as of the last day of such APA

Tax Year. This payable will be denominated in #CURRENCY. The payable will be treated as indebtedness for all U.S. federal tax purposes; provided, however, that the payable will not be treated as indebtedness for purposes of Code section 956

if the payable is satisfied within 90 days of the close of the APA Tax Year with respect to which it is established.

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ii. []

The intercompany payable will bear interest at an arm’s length rate.

[]

Such arm’s length rate is not specified in this APA and will be determined under applicable legal principles.

[]

Such arm’s length rate is determined as follows. #DESCRIPTION OF ARM’S LENGTH RATE (FOR EXAMPLE,

FOR A U.S. DOLLAR PAYABLE, A CERTAIN APPLICABLE FEDERAL RATE UNDER U.S. TREASURY REGULATIONS SECTION 1.482-2(a)(2)(iii)(C)).

[]

This APA is bilateral or multilateral. As agreed between the United States and #COUNTRY(IES), the intercompany

payable will not bear interest.

iii. The intercompany payable must be satisfied, in a manner permitted under Rev. Proc. 99-32 or any successor revenue procedure, within 90 days of the later of (1) the date for timely filing (with extensions) of the U.S. return for such APA Tax Year,

and (2) the APA’s U.S. Effective Date. If any amount of the intercompany payable is not otherwise so satisfied within that

90-day period, such amount, on the last day of such period, will be deemed (1) to be paid between U.S. Entity and Non-U.S.

Entity in satisfaction of the payable, and (2) to be paid (directly or indirectly, as specified below) between U.S. Entity and

Non-U.S. Entity in the opposite direction (that is, from the deemed recipient of the intercompany payable to the deemed

payor of the intercompany payable). These two deemed payments on the same day will cancel and thus yield no net cash

flow between these two entities. The second of these deemed payments will be referred to as the “reverse payment.” The

reverse payment will be deemed to be as follows:

A. If the net APA Primary Adjustment increases U.S. income:

[]

The reverse payment will be deemed to be a contribution to capital from U.S. Entity to Non-U.S. Entity, either

directly, or indirectly through the corporate chain, as the case may be.

[]

The reverse payment will be deemed to be a distribution from U.S. Entity to Non-U.S. Entity, either directly, or

indirectly through the corporate chain, as the case may be.

[]

The reverse payment will be deemed to be a distribution from U.S. Entity to #COMMON PARENT, either directly,

or indirectly through the corporate chain, as the case may be, followed by a contribution by #COMMON PARENT

to non-U.S. Entity, either directly or indirectly through the corporate chain, as the case may be.

B. If the net APA Primary Adjustment decreases U.S. income:

[]

The reverse payment will be deemed to be a contribution to capital from non-U.S. Entity to U.S. Entity, either

directly, or indirectly through the corporate chain, as the case may be.

[]

The reverse payment will be deemed to be a distribution from non-U.S. Entity to U.S. Entity, either directly, or

indirectly through the corporate chain, as the case may be.

[]

The reverse payment will be deemed to be a distribution from non-U.S. Entity to #COMMON PARENT, either

directly, or indirectly through the corporate chain, as the case may be, followed by a contribution by #COMMON

PARENT to U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

This situation is generally described in paragraph 4.66 of the OECD Guidelines, and in U.S. Treasury Regulations section 1.4821(g) and Rev. Proc. 99-32.

In this APA, if applicable:

[]* For the APA Tax Year(s) ending on or before #DATE, it is agreed that the net APA Primary Adjustment(s), if any, from the

application of the Covered Methods are as follows: #FOR EACH SUCH APA TAX YEAR, DESCRIPTION OF WHETHER

THERE IS A NET APA PRIMARY ADJUSTMENT, AND IF SO THE AMOUNT AND DIRECTION. IF THERE IS

MORE THAN ONE COVERED METHOD FOR A REPATRIABLE ISSUE, ALSO PROVIDE A TABLE SHOWING THE

DERIVATION, FOR EACH SUCH APA TAX YEAR, OF THE NET APA PRIMARY ADJUSTMENT FROM THE APA

PRIMARY ADJUSTMENT (OR LACK OF ONE) FOR EACH SUCH COVERED METHOD. #FOR ANY SUCH NET

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APA PRIMARY ADJUSTMENTS, DESCRIPTION OF THE MEANS BY WHICH THE CONFORMING ADJUSTMENT

HAS BEEN OR WILL BE SATISFIED, WITH APPLICABLE DATES.

Definitions

The definitions in the table below apply to this APA.

The defined terms in this table include certain measures of profitability (e.g., operating profit, operating margin). Most of these

measures are ultimately defined in terms of sales revenue, operating expenses, and operating assets (defined terms), and cogs

and non-interest-bearing liabilities (undefined terms). The definitions of sales revenue, operating expenses, and operating

assets contain a limitation to the relevant business activity. Similarly, each use of the terms “cogs” and “non-interest-bearing

liabilities” is accompanied by a limitation to the relevant business activity. Therefore, the measures of profitability based on

these five terms all are defined with a limitation to the relevant business activity. (Certain other measures of profitability in

this table relate to the provision of services and are defined with reference to those services. Therefore, those measures as

well contain a limitation to the relevant business activity.)

Term

Arm’s Length Range

APA Primary Adjustment

APA Covered Year

APA Term

APA Tax Year

Applicable Accounting

Standard

Berry ratio

Code

correspond, corresponding

Covered Entity(ies)

Covered Issue(s)

Covered Method

Critical Assumption

fails, failure of a Critical

Assumption

Early Termination

Gross profit

April 17, 2023

Definition

With respect to a particular Covered Method, a numerical range that defines the values for which

certain financial results of the Tested Party are considered to satisfy the arm’s length standard.

(This term may be referenced in section 4 of this Appendix A.)

(Defined in section 5 of this Appendix A.)

(Defined in section 2 of this Appendix A.)

The Applicable Accounting Standard is #CHOOSE FROM U.S. GAAP, IFRS, ETC. for U.S.

Taxpayer and #CHOOSE FROM U.S. GAAP, IFRS, ETC. for Non-U.S. Taxpayer.

The ratio of gross profit to operating expenses.

The U.S. Internal Revenue Code of 1986, title 26 of the United States Code, as amended.

(With regard to APA Covered Years and APA Tax Years, defined in section 2 of this Appendix A;

with regard to Covered Issues and Covered Methods, defined in section 4 of this Appendix A.)

(Defined in section 1 of this Appendix A.)

(Defined in section 3 of this Appendix A.)

A method used to resolve one or more Covered Issues, as described in section 4 of this Appendix

A. (In some cases, this method may be a “transfer pricing method” within the meaning of

chapter II of the OECD Guidelines and U.S. Treasury Regulations section 1.482-1(b).)

A Critical assumption “fails” when the Critical Assumption has not been met. This situation is

referred to as the “failure” of the Critical Assumption.

A termination of this APA’s effectiveness, either in its entirely or only as applied to certain

Covered Issues before the end of the APA Term. Such a termination could result from one or

more of the following circumstances: (i) a Critical Assumption failure, (ii) a violation of the

terms and conditions of this APA, (iii) a cancellation of the APA under Rev. Proc. 2015-41, and

(iv) an amendment of the APA. If an Early Termination so terminates this APA’s effectiveness

as applied to a particular Covered Issue, the Early Termination is said to “apply” to or for that

Covered Issue.

Any such termination of effectiveness would occur as of the end of an APA Tax Year (see

Rev. Proc. 2015-41, section 7.06). Because such end of an APA Tax Year is before the end of the

APA Term, such end of an APA Tax Year is also the end of the corresponding APA Covered Year

(see the definitions of APA Tax Year and APA Covered Year in section 2 of this Appendix A).

Thus, an Early Termination always would occur as of the end of an APA Covered Year. That fact

is assumed in the definitions in this table of Last Effective APA Covered Year and Last Effective

APA Subterm Covered Year.

Sales revenue, less cost of goods sold for the relevant business activity.

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Bulletin No. 2023–16

Term

Gross profit margin

Gross profit markup

Gross services margin

Gross services profit markup

IFRS

Invested capital

IRS

IFRS

Last Effective APA Covered

Year

Last Effective APA Subterm

Covered Year

Markup on total costs

Median

Non-U.S. Taxpayer

Non-U.S. Covered Entity(ies)

OECD Guidelines

OECD PE Report

Operating assets

Operating expenses

Operating margin

Operating profit

Rev. Proc. 99-32

Rev. Proc. 2015-41

Bulletin No. 2023–16

Definition

gross profit, divided by sales revenue

gross profit, divided by cost of goods sold for the relevant business activity

In connection with a provision of services, the ratio of gross services profit to the price paid for

the services in an uncontrolled transaction. For this purpose, gross services profit equals the

amount of such price that is retained by the Tested Party.

In connection with a provision of services, gross services profit, divided by transactional costs.

For this purpose, gross services profit equals sales revenue less transactional costs. Also, for this

purpose, transactional costs equal costs directly attributable to providing the services. Such costs

would include, for example, all compensation attributable to employees directly involved in the

performance of such services, and costs of materials and supplies consumed or made available in

rendering the services.

International Financial Reporting Standards.

Operating assets, less non-interest-bearing liabilities used in the relevant business activity.

The Internal Revenue Service, an agency of the U.S. government.

International Financial Reporting Standards.

For a particular Covered Method, the last APA Covered Year for which this APA remains

effective as to the Covered Issue(s) corresponding to that Covered Method. The Last Effective

APA Covered Year will be the last APA Covered Year unless an Early Termination applies to

such Covered Issue(s). See also the definition in this table of Early Termination.

For a particular Covered Method, and with reference to a particular set of APA Covered Years

that is defined as a subterm, the last APA Covered Year in the subterm for which this APA

remains effective as to the Covered Issue(s) corresponding to that Covered Method. The Last

Effective APA Subterm Covered Year will be the last APA Covered Year in the subterm unless

an Early Termination applies to such Covered Issue(s) and renders the APA ineffective as to

such Covered Issue(s) before the end of the subterm. See also the definition in this table of Early

Termination.

The ratio of operating profit to total costs.

With respect to a particular Arm’s Length Range, the median of a set of observations of market

data from which that Arm’s Length Range was determined.

(Defined in section 1 of this Appendix A.)

Organisation for Economic Co‑operation and Development, OECD Transfer Pricing Guidelines

for Multinational Enterprises and Tax Administrations (July 2017).

Organisation for Economic Co‑operation and Development, 2010 Report on Attribution of Profit

to Permanent Establishments (July 22, 2010).

The value of all assets used in the relevant business activity, including fixed assets and current

assets (such as accounts receivable and inventories). The following items are excluded from

operating assets: cash, cash equivalents, short-term investments, deferred tax assets, tax refunds,

intangibles, investments in subsidiaries, portfolio investments.

All expenses (including depreciation) not included in cost of goods sold except for interest

expense, domestic and foreign income taxes, amortization of intangibles, and any other expenses

not related to the operation of the relevant business activity. Operating expenses normally

include, for example, expenses associated with advertising, promotion, sales, marketing,

warehousing and distribution, administration, and a reasonable allowance for depreciation. For

U.S. Taxpayer, foreign income taxes are defined in U.S. Treasury Regulations section 1.902-1(a)

(7).

The ratio of operating profit to sales revenue.

Sales revenue, less cost of goods sold for the relevant business activity, less operating expenses.

A revenue procedure issued by the IRS that is cited as Rev. Proc. 99-32, 1999-2 C.B. 296.

A revenue procedure issued by the IRS that is cited as Rev. Proc. 2015-41, 2015-35 I.R.B 263.

705

April 17, 2023

Term

Repatriable Issue

Relevant Financial Data

Return on invested capital

Return on operating assets

Rollback Period

Sales revenue

Tax year

Tested Party

Testing period

Total costs

U.S. Treasury Regulations

U.S. Covered Entity(ies)

U.S. Effective Date

U.S. GAAP

U.S. return

U.S. Taxpayer

April 17, 2023

Definition

(Defined in section 6 of this Appendix A.)

With respect to a particular Covered Method, the financial results of the Tested Party that are

tested, together with any other financial data (of the Tested Party or any other party) that are

considered in determining compliance with the Covered Method.

(Defined in the same way as “return on operating assets,” but with “operating assets” replaced

by “invested capital” wherever it occurs in the definition.)

With respect to a particular Covered Method, the Tested Party for that Covered Method, and a

testing period used in that Covered Method, the operating profit over the testing period divided

by the time-weighted average operating assets over the testing period.

For this purpose, the time-weighted average operating assets over the testing period is the

sum, over all APA Covered Years in the testing period, of the following product: (i) the simple

average of the operating asset levels at the start and end of the APA Tax Year corresponding to

such APA Covered Year, multiplied by (ii) the ratio of the number of calendar days in the APA

Covered Year, to 365.

For example, suppose that (i) the testing period consists of two consecutive APA Covered

Years, the first with 183 calendar days and the second with 366 calendar days, (ii) the total

operating profit over those two years is exactly 3.4, and (iii) the operating assets levels are

exactly 10 at the start of the APA tax year corresponding to the first APA Covered Year, 16 at the

end of the APA Tax Year corresponding to the first APA Covered Year (which is also the start

of the APA Tax Year corresponding to the second APA Covered Year), and 22 at the end of the

APA Tax Year corresponding to the second APA Covered Year. Then the time-weighted average

operating assets over the testing period is [(10+16)/2]*(183/365) + [(16+22)/2]*(366/365) =

25.5699. The return on operating assets is then 3.4/25.5699 = 13.30%.

(This term, if applicable, is defined in section 2 of this Appendix A.)

Total receipts from sale of goods and provision of services, less returns and allowances, for the

relevant business activity.

A standard or irregular year that is used for tax reporting purposes. For U.S. Taxpayer, a tax year

is a “taxable year,” as defined in Code section 441.

(Defined in section 4 of this Appendix A with regard to a particular Covered Method.)

The time period over which financial results are tested (see section 4 of Appendix A to this

APA).

Cost of goods sold for the relevant business activity, plus operating expenses.

Tax regulations issued by the U.S. Treasury Department, found at title 26 of the Code of Federal

Regulations.

(Defined in section 1 of this Appendix A.)

The date, or later date of the dates, upon which the APA is executed by the IRS and by or on

behalf of each U.S. Covered Entity.

U.S. generally accepted accounting principles.

Any of the “Returns with respect to income taxes under subtitle A” required by Code section

6012, and any “return” for a partnership required by Code section 6031.

(Defined in section 1 of this Appendix A.)

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APPENDIX B

CRITICAL ASSUMPTIONS

The Critical Assumptions are:

The Covered Entities’ business activities, functions performed, risks assumed, assets employed, contractual terms, markets, and

economic conditions faced in relation to the Covered Issue(s) will remain materially the same as described in the APA Request.

For this purpose, a mere change in business results will not be a material change.

The Covered Entities’ financial accounting methods and classifications and methods of estimation in relation to the Covered

Issue(s) and Covered Method(s) will remain materially the same as described or used in the APA Request.

If indicated, the effect of a critical assumption failure may be limited as follows:

[]

The failure of Critical Assumptions #XXX listed above will affect the effectiveness of this APA only as to Covered Issues

#YYY listed in Appendix A. Thus, as to the other Covered Issues, the APA will remain in force (except to the extent some

other condition affects the APA’s effectiveness as to those Covered Issues).

The Covered Entities will not cause a critical assumption to fail for the purpose of rendering the APA ineffective, unless they have

an independent business justification (unrelated to rendering the APA ineffective) for the action that causes the critical assumption

to fail. If one or more Covered Entities do cause a critical assumption to fail for the purpose of rendering the APA ineffective, and

without such independent business justification, then the Covered Entities will not withhold consent to an amendment to this APA

to the effect that this APA will continue in force without regard to such failure. In this case, if a Covered Entity refuses to sign such

an amendment, such an amendment may be executed without such signature and will then have the same force and effect as if the

amendment had such signature.

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APPENDIX C

APA RECORDS AND ANNUAL REPORT

APA RECORDS

The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes,

work papers, records, or other writings that support the information provided in such documents.

ANNUAL REPORT

An Annual Report must be submitted for each APA Tax Year in accordance with paragraph 6(e) of the APA and section 7.02 of

Rev. Proc. 2015-41.

For each APA Tax Year, the Annual Report (and each copy or version as required by paragraph 6(e) of the APA) will include:

Two copies of a properly completed APA Annual Report Summary in the form of Appendix D to this APA, one copy of the form

bound with, and one copy provided separately from, the rest of the Annual Report. (The electronic version of the Annual Report

need have only one copy of this item.)

A table of contents organized according to the additional required items listed below.

For such APA Tax Year and the corresponding APA Covered Year, statements that fully identify, describe, analyze, and explain:

All material differences between the Covered Entities’ business activities, functions performed, risks assumed, assets

employed, contractual terms, markets, and economic conditions faced in relation to the Covered Issues during such APA

Covered Year from those same items described in the APA Request. If there have been no such material differences, the

Annual Report will include a statement to that effect.

All material differences between Covered Entities’ financial accounting methods and classifications and methods of estimation in relation to the Covered Issues and Covered Methods used during such APA Covered Year, from those described or

used in the APA Request. If any change was made to conform to changes in the Applicable Accounting Standard, U.S. Taxpayer will specifically identify the change. If there have been no such material differences, the Annual Report will include a

statement to that effect.

Regarding notices under paragraph 16 of the APA:

A current statement of how the IRS should provide such notices to U.S. Taxpayer (and, if applicable, to U.S. Taxpayer’s

representative).

ii. A copy of any such notices that were submitted by U.S. Taxpayer to the IRS after the last Annual Report was submitted

(or, if there was no prior Annual Report, after the APA was executed). If there were no such notices, the Annual Report

will include a statement to that effect.

Any failure of any Critical Assumption. If there has been no such failure, the Annual Report will include a statement to that

effect.

Whether or not material information submitted while the APA Request was pending is discovered to be false, incorrect, or

incomplete, and if so a correction or completion of that information, as applicable.

Any change to any entity classification for federal income tax purposes (including any change that causes an entity to be disregarded for federal income tax purposes) of any Worldwide Group member that is a Covered Entity or is otherwise relevant

to the Covered Issue(s) or Covered Method(s).

The following regarding any APA Primary Adjustments made for such APA Tax Year under Appendix A to this APA:

The amounts of any APA Primary Adjustments;

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ii. The circumstances that led to such APA Primary Adjustments being necessary;

iii. A calculation of the net APA Primary Adjustment as defined in Appendix A to this APA; and

iv. A complete description of the means by which the conforming adjustment (see section 6 of Appendix A to this APA) is

accomplished, including:

A. a description of any accounts payable established, including the entities involved and when the payables are

established;

B. a description of any amounts paid or deemed paid (including amounts paid or deemed paid in satisfaction of an

intercompany payable established as described in section 6 of Appendix A to this APA, and including any deemed

reverse payments as described in section 6 of Appendix A to this APA), that specifies the entities involved, when

the amounts are paid or deemed paid, and by what means any amounts are actually paid; and

C. the character (such as capital, ordinary, income, expense, dividend, contribution to capital) and country source of

any payments and deemed payments, and the specific affected line item(s) of any affected U.S. return;

A detailed numerical explanation of how the result of the application of the Covered Methods is reflected on the U.S. return,

with reference to particular line items on the U.S. return. This explanation shall include the amounts, description, reason for,

and financial analysis of any book-tax differences, as reflected on Schedule M-1 or Schedule M-3 of the U.S. return for such

APA Tax Year, that (i) are relevant to an APA Primary Adjustment, (ii) otherwise are relevant to the book and tax treatment

of any income or expense item that is part of the Relevant Financial Data for, or is determined by, any Covered Method for

such APA Tax Year, or (iii) otherwise are relevant to the APA. U.S. Taxpayer shall

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