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Internal Revenue Bulletin › IRB 2016 › Announcement › Announcement 2016-12
Text
1
ANNOUNCEMENT AND REPORT
CONCERNING
ADVANCE PRICING AGREEMENTS
March 31, 2016
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 2014 separately.
This seventeenth report describes the experience, structure, and activities of the APMA Program
during calendar year 2015. 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 2015, including types of transactions covered, transfer
pricing methods used, and completion time.
Hareesh Dhawale
Director, Advance Pricing and Mutual Agreement Program
2
Part I. The APMA Program – Structure, Composition, and Operation
[PUB. L. 106-170 § 521(b)(2)(A)]
In February of 2012, the former APA Program was moved from the Office of Chief Counsel to
the Office of Transfer Pricing Operations within the Large Business and International Division
of the IRS and combined with the United States Competent Authority staff responsible for
transfer pricing cases, thereby forming the APMA Program.
After the formation of the APMA Program, the team that developed the IRS position in a
bilateral or multilateral case and finalized the APA with the taxpayer also became responsible for
discussing the case and obtaining an agreement with the treaty partner
and combined with the United States Competent Authority staff responsible for
transfer pricing cases, thereby forming the APMA Program.
After the formation of the APMA Program, the team that developed the IRS position in a
bilateral or multilateral case and finalized the APA with the taxpayer also became responsible for
discussing the case and obtaining an agreement with the treaty partner. This compression of
functions into a single APA team has helped to eliminate inefficiencies and has decreased the
amount of time it takes to reach resolution once a case is set for discussion with the treaty
partner.
As of December 31, 2015, the APMA Program was comprised of 62 team leaders, 21
economists, and 10 senior managers organized into 10 groups (7 team leader groups and 3
economist groups). Each team leader group has responsibility for cases involving certain
countries with one of the economist groups also taking responsibility of a country. Because of
the large volume of cases with certain treaty partners, some countries are the responsibility of
more than one group. The APMA Program’s main office is located in Washington, DC, and it
also has a significant presence in San Francisco and the Los Angeles area.
On August 31, 2015, new revenue procedures governing MAP and APA applications were
published in 2015-35 I.R.B. 236 and 263, respectively. Revenue Procedure (Rev. Proc.) 2015-41
provides guidance and instructions on filing APA requests as well as guidance and information
on 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. Rev. Proc. 2015-40 provides procedures and guidance on requesting assistance from
the U.S. Competent Authority where the taxpayer believes that the actions of the United States or
a treaty country result or will result in the taxpayer being subject to taxation not in accordance
with the applicable U.S. tax treaty. Rev. Proc
ied by Rev. Proc. 2008-31, 2008-1 C.B. 1133, which is also
superseded. Rev. Proc. 2015-40 provides procedures and guidance on requesting assistance from
the U.S. Competent Authority where the taxpayer believes that the actions of the United States or
a treaty country result or will result in the taxpayer being subject to taxation not in accordance
with the applicable U.S. tax treaty. Rev. Proc. 2015-40 updates and supersedes Rev. Proc. 2006-
54, 2006-2 C.B. 1035. These revenue procedures reflect the changes in APMA’s structure and
were informed by the cumulative experience of more than 20 years of APA practice in the
United States.
The model APA agreement, which was last significantly revised in 2009, is currently under
review for future changes and appears in this report as Appendix 1. A list of primary APMA
contacts is included as Appendix 2.
3
Part II. APMA Program Statistical Data
[Pub. L. 106-170 § 521(b)(2)(C)(i-viii)]
Table 1: APA Applications Filed
§ 521(b)(2)(C)(i)
Unilateral
Bilateral Multilateral
Total
Filed 1991-19991
401
Filed 2000-2014
490
1067
6
1563
Filed in 2015
52
127
4
183
Total Filed 1991-2015
2147
The table above illustrates the number of applications filed per year; however, the table does not
include situations in which the taxpayer has paid a user fee but has not yet submitted a
substantially complete APA request. As of December 31, 2015, APMA had received 14 user fee
filings in addition to the 183 complete APA applications.
1 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
As of December 31, 2015, APMA had received 14 user fee
filings in addition to the 183 complete APA applications.
1 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.
0
50
100
150
200
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Applications Filed
2006-2015
Japan
39%
Canada
17%
Germay
9%
Korea
8%
UK
5%
Australia
4%
China
4%
All Other Countries
14%
Bilateral APAs
Filed by Country 2015
4
Table 2: Executed and Pending APAs
§ 521(b)(2)(C)(ii-vi)
Unilateral
Bilateral
Multilateral
Total
Total Executed 1991-2014
509
878
14
1401
Total Executed in 2015
30
80
0
110
Total Executed 1991-2015
539
958
14
1511
Total Pending
85
316
9
410
Renewals Executed in 2015
18
48
0
66
Renewals Pending
40
146
2
188
Of the 110 agreements executed in 2015, 44 of the agreements (40 percent) were new APAs (i.e.,
not a renewal of a prior APA). This was a decrease from the 53 (52 percent) new APAs executed
in 2014.
As the chart above illustrates, nearly three quarters of the total number of bilateral APAs
executed in 2015 involved the United States entering into mutual agreements with Japan or
0
50
100
150
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
APAs Executed
2006-2015
Japan
46%
Canada
23%
Denmark
5%
Germany
4%
Korea
4%
Netherlands
4%
Switzerland
4%
All Other Countries
10%
Bilateral APAs
Executed by Country 2015
5
Canada. A notable milestone achieved by APMA in 2015 was the execution of the first bilateral
APA between the United States and Italy.
The number of pending APAs rose in 2015 due largely to the record numbers of APA requests
received during the fourth quarter
Germany
4%
Korea
4%
Netherlands
4%
Switzerland
4%
All Other Countries
10%
Bilateral APAs
Executed by Country 2015
5
Canada. A notable milestone achieved by APMA in 2015 was the execution of the first bilateral
APA between the United States and Italy.
The number of pending APAs rose in 2015 due largely to the record numbers of APA requests
received during the fourth quarter. Japan and Canada continued to account for more than half of
the pending bilateral APAs in 2015.
Table 3: APAs Revoked or Cancelled and Applications Withdrawn
§ 521(b)(2)(C)(vii)
Unilateral Bilateral Multilateral
Total
Revoked or Cancelled in 2015
0
0
0
0
Total Revoked or Cancelled 1991-2015
11
Applications Withdrawn in 2015
4
6
0
10
Total Applications Withdrawn 1991-2015
200
0
100
200
300
400
500
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Pending APAs
2006-2015
Japan
38%
Canada
18%
Korea
9%
Germany
7%
UK
5%
China
4%
Mexico
4%
All Other Countries
15%
Bilateral APAs
Pending by Country 2015
6
Table 4: APAs Finalized or Renewed2 by Industry
§ 521(b)(2)(C)(viii)
Industry
Manufacturing
44
Wholesale/Retail Trade
39
Services
12
Management
7
Finance, Insurance and Real Estate
4
All Other Industries
4
2 APAs finalized or renewed are the same as APAs executed
15%
Bilateral APAs
Pending by Country 2015
6
Table 4: APAs Finalized or Renewed2 by Industry
§ 521(b)(2)(C)(viii)
Industry
Manufacturing
44
Wholesale/Retail Trade
39
Services
12
Management
7
Finance, Insurance and Real Estate
4
All Other Industries
4
2 APAs finalized or renewed are the same as APAs executed.
Manufacturing
40%
Wholesale/Retail
Trade
35%
Services
11%
Management
6%
Finance, Insurance
and Real Estate
4%
All Other Industries
4%
APAs by Industry
Finalized or Renewed 2015
7
Table 4a: Manufacturing APAs Finalized or Renewed
Manufacturing
Computer and Electronic Products
10
Chemical
9
Transportation Equipment
7
Miscellaneous Manufacturing3
5
All Other Types of Manufacturing
13
Table 4b: Wholesale/Retail Trade APAs Finalized or Renewed
Wholesale/Retail Trade
Merchant Wholesalers, Durable Goods
28
Merchant Wholesalers, Nondurable Goods
5
All Other Types of Other Wholesale/Retail Trade
6
3 Miscellaneous Manufacturing is NAICS code 339.
Computer and
Electronic Products
23%
Chemical
20%
Transportation
Equipment
16%
Miscellaneous
Manufacturing
11%
All Other
Manufacturing
30%
Manufacturing APAs
Finalized or Renewed 2015
Merchant
Wholesalers, Durable
Goods
72%
Merchant
Wholesalers,
Nondurable Goods
13%
All Other
Wholesalers
15%
Wholesale/Retail Trade APAs
Finalized or Renewed 2015
8
Part III. General Descriptions of APAs Executed in 2015
[Pub. L. 106-170 § 521(b)(2)(D) and (E)]
Nature of the Relationships
§ 521(b)(2)(D)(i)
As in prior years, more than half of the APAs executed in 2015 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)
In the majority of APAs, the covered transactions involve numerous business functions and risks
521(b)(2)(D) and (E)]
Nature of the Relationships
§ 521(b)(2)(D)(i)
As in prior years, more than half of the APAs executed in 2015 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)
In the majority of APAs, the covered transactions involve numerous business functions and risks.
For instance, with respect to functions, APAs involving manufactured products typically involve
a controlled group that conducts research and development (R&D), engages in product design
and engineering, manufactures the product, markets and distributes the product, and performs
support functions such as legal, finance, and human resources services. Regarding risks, the
controlled group may assume a variety of risks including market risks, R&D risks, financial
risks, credit and collection 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 amongst the controlled group of companies that are party to the
covered transactions. Generally, for methods requiring selection of a tested party, the tested party
that is chosen will be the least complex of the controlled taxpayers that does not make nonroutine
contributions.
Non-U.S. Parent &
U.S. Subsidiary
64%
U.S. Parent & Non-
U.S. Subsidiary
18%
Sister Companies
11%
All Other
Relationships
7%
Relationships between Controlled Parties 2015
9
Consistent with prior years, more than half of the tested parties of the APAs executed in 20154
fell into one of two categories, i.e., U.S. distributors and U.S. service providers. Combined, these
two types of tested parties represent 60 percent of the total.
Although 75 percent of covered transactions5 involve tangible goods and services transactions,
the IRS also has successfully completed numerous APAs involving transfers of intangibles
sted parties of the APAs executed in 20154
fell into one of two categories, i.e., U.S. distributors and U.S. service providers. Combined, these
two types of tested parties represent 60 percent of the total.
Although 75 percent of covered transactions5 involve tangible goods and services transactions,
the IRS also has successfully completed numerous APAs involving transfers of intangibles.
While complex transactions involving intangibles may be more challenging and represent a
smaller percentage of the covered transactions in 2015 (24 percent), the IRS continues to seek
opportunities to work with taxpayers and treaty partners to provide prospective certainty for such
transactions wherever appropriate.
4 Not all APAs executed in 2015 involved a tested party.
5 APAs often cover more than one type of transaction.
U.S. Distributor
36%
Non-U.S. Distributor
8%
U.S. Manufacturer
12%
Non-U.S.
Manufacturer
6%
U.S. Service Provider
24%
Non-U.S. Service
Provider
13%
Other Types of
Tested Parties
1%
Types of Tested Parties 2015
Sale of Tangible
Property into the U.S.
26%
Sale of Tangible
Property from the
U.S.
11%
Use of Intangible
Property by a U.S.
Entity
16%
Use of Intangible
Property by a Non-
U.S. Entity
8%
Performance of
Services by a U.S.
Entity
24%
Performance of
Services by a Non-
U.S. Entity
14%
Other Types of
Covered Transactions
1%
Types of Covered Transactions 2015
10
More than 60 percent of the tested parties in the APAs executed in 2015 involved distribution or
related functions, i.e., marketing and product support.
The majority of tested parties bear multiple risks. The chart above illustrates all of the risks
borne by the tested parties for APAs executed in 2015
Other Types of
Covered Transactions
1%
Types of Covered Transactions 2015
10
More than 60 percent of the tested parties in the APAs executed in 2015 involved distribution or
related functions, i.e., marketing and product support.
The majority of tested parties bear multiple risks. The chart above illustrates all of the risks
borne by the tested parties for APAs executed in 2015.
Transfer Pricing Methods Used
§ 521(b)(2)(D)(iv)
As shown on the following graphs, and consistent with prior years, the primary transfer pricing
method (TPM) used for transfers of both tangible and intangible property in APAs executed in
2015 was the comparable profits method/transactional net margin method (CPM/TNMM).
Marketing
20%
Distribution
27%
Manufacturing
11%
Administrative
Services
17%
Product Support
16%
Research &
Development
7%
All Other Functions
Performed
2%
Tested Party Functions 2015
Market
27%
Credit & Collection
20%
Financial
11%
Product Liability
10%
Other Risks
3%
General Business
29%
Tested Party Risks 2015
11
In controlled transactions using the CPM/TNMM, operating margin continues to be the most
common profit level indicator (PLI) used to benchmark results for transfers of tangible and
intangible property. As used here, “operating margin” means the ratio of operating profits to
sales6 and “Berry Ratio” means the ratio of gross profit to operating expenses.7
6 See Treas. Reg. § 1.482-5(b)(4)(ii)(A).
7 See Treas. Reg. § 1.482-5(b)(4)(ii)(B)
el indicator (PLI) used to benchmark results for transfers of tangible and
intangible property. As used here, “operating margin” means the ratio of operating profits to
sales6 and “Berry Ratio” means the ratio of gross profit to operating expenses.7
6 See Treas. Reg. § 1.482-5(b)(4)(ii)(A).
7 See Treas. Reg. § 1.482-5(b)(4)(ii)(B).
CPM/TNMM
79%
Comparable
Uncontrolled
Transactions Method
11%
Profit Split Methods
7%
All Other TPMs
3%
Tangible and Intangible Property
Transfer Pricing Methods 2015
Operating Margin
62%
Berry Ratio
25%
Return on Assets or
Capital Employed
5%
All Other PLIs
8%
Tangible and Intangible Property
CPM/TNMM
Profit Level Indicators in 2015
12
For services transactions, the majority of cases applied the CPM/TNMM or the services cost
method. The services cost method evaluates the amount charged for certain services with
reference to the total services costs.8
When the CPM/TNMM is used to benchmark services transactions, mark up on costs is the most
frequently used PLI.
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 2015 that used external comparables data in the analysis, the most
widely used data source for comparables was Standard and Poor’s Compustat/Capital IQ
database. Other sources were also used in appropriate cases (e.g., where the tested party was not
the U.S. entity or transaction-based methods were applied). Other commonly used sources
include the databases listed in Table 5.
8 See Treas. Reg. § 1.482-9(b)
used data source for comparables was Standard and Poor’s Compustat/Capital IQ
database. Other sources were also used in appropriate cases (e.g., where the tested party was not
the U.S. entity or transaction-based methods were applied). Other commonly used sources
include the databases listed in Table 5.
8 See Treas. Reg. § 1.482-9(b).
CPM/TNMM
85%
Services Cost
Method
11%
All Other TPMs
4%
Services
Transfer Pricing Methods in 2015
Operating Margin
32%
Berry Ratio
13%
Mark up on Costs
55%
Services
CPM/TNMM
Profit Level Indicators in 2015
13
Table 5: Commonly Used Sources of Comparable Data
Avention (formerly known as OneSource)
Mergent
Bloomberg
Orbis
Disclosure
Recap
Global Vantage
RoyaltySource
ktMINE
RoyaltyStat
LoanConnector
Worldscope
In making comparability adjustments, the standard balance sheet adjustments identified in Treas.
Reg. § 1.482-1(d) and § 1.482-5(c), including adjustments for differing amounts of payables,
receivables, and inventory, were made in the majority of cases. Where appropriate, adjustments
for different accounting practices were made to convert from LIFO to FIFO inventory
accounting, and a small number of cases also involved the accounting reclassification of
expenses, e.g., from COGS to operating expenses.
Ranges, Targets, and Adjustment Mechanisms
§ 521(b)(2)(D)(viii-ix)
The majority of transactions covered in APAs target an interquartile range as described in Treas.
Reg. § 1.482-1(e)(2)(iii)(C). Where the transaction involves a royalty payment for the use of
intangible property, both specific royalty rates and ranges have been used. In some cases where
the covered transaction is the payment of a royalty based solely on external royalty agreements, a
secondary method, e.g., a test of the post-royalty operating margin, has also been used
described in Treas.
Reg. § 1.482-1(e)(2)(iii)(C). Where the transaction involves a royalty payment for the use of
intangible property, both specific royalty rates and ranges have been used. In some cases where
the covered transaction is the payment of a royalty based solely on external royalty agreements, a
secondary method, e.g., a test of the post-royalty operating margin, has also been used. The
testing periods of the APAs executed in 2015 were either: (1) a single year, (2) the term of the
APA only, or (3) the term of the APA plus rollback years.
APAs executed in 2015 include a number of mechanisms for making adjustments to tested party
results when the results fall outside the range or do not match the point required by the APA. The
following are examples of the mechanisms used: an adjustment bringing the tested party’s results
to the closer edge of the range applied to the results of a single year; an adjustment to the closer
edge of the range applied to the results over the APA term; an adjustment to the specified point
or royalty rate; or an adjustment to the median of the range for a single year.
Critical Assumptions
§ 521(b)(2)(D)(v)
The model APA used by the IRS (included as Appendix 1 of this report) includes a standard
critical assumption that there will be no material changes to the taxpayer’s business or to its tax
or financial accounting practices during the APA term. Each of the APAs executed in 2015
included this standard critical assumption. A few bilateral cases have included critical
assumptions tied to either the taxpayer’s profitability in a certain year or over the term of the
APA, or to the amount of non-covered transactions as a percentage of the taxpayer’s revenue.
Pursuant to § 7.06(3) of Rev. Proc. 2015-41, 2015 I.R.B. 263, APMA will cancel an APA in the
event of a failure of a critical assumption unless the parties agree to revise the APA
es have included critical
assumptions tied to either the taxpayer’s profitability in a certain year or over the term of the
APA, or to the amount of non-covered transactions as a percentage of the taxpayer’s revenue.
Pursuant to § 7.06(3) of Rev. Proc. 2015-41, 2015 I.R.B. 263, APMA will cancel an APA in the
event of a failure of a critical assumption unless the parties agree to revise the APA.
14
Term Lengths of APAs Executed in 2015
§ 521(b)(2)(D)(x)
Table 6: Term Lengths (Including Rollback Years)
Term Length
(years)
Number of
APAs
1
≤3
2
≤3
3
≤3
4
5
5
40
6
10
7
21
8
9
9
11
10
4
>10
7
Average
7 years
As described in § 3.03(1) of Rev. Proc. 2015-41, taxpayers should request an APA term that
would cover at least 5 prospective years, although the appropriate APA term is decided on a
case-by-case basis. Taxpayers may also request that the APA be “rolled back” to cover one or
more earlier taxable years. Of the APAs executed in 2015, only 24 (22 percent) included rollback
years. For those APAs with terms of greater than 5 years, a substantial number of those were
submitted as a request for a 5-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.
0
10
20
30
40
1
2
3
4
5
6
7
8
9
10
Number of APAs
Number of Years (Including Rollback)
Term Length of APAs in 2015
15
Amount of Time Taken to Complete New and Renewal APAs
§ 521(b)(2)(E)
Table 7: Months to Complete New and Renewal APAs Executed in 2015
§ 521(b)(2)(E)
Unilateral
Bilateral
Unilateral & Bilateral
Average
Median
Average
Median
Average
Median
New
28.0
23.7
40.6
41.9
37.2
34.2
Renewal
20.2
14.4
42.4
35.5
36.3
31.6
New & Renewal
23.4
17.3
41.7
38.2
36.7
31.9
The median time required to complete APAs executed in 2015 decreased from 2014 (31.9
mont
mplete New and Renewal APAs Executed in 2015
§ 521(b)(2)(E)
Unilateral
Bilateral
Unilateral & Bilateral
Average
Median
Average
Median
Average
Median
New
28.0
23.7
40.6
41.9
37.2
34.2
Renewal
20.2
14.4
42.4
35.5
36.3
31.6
New & Renewal
23.4
17.3
41.7
38.2
36.7
31.9
The median time required to complete APAs executed in 2015 decreased from 2014 (31.9
months in 2015 compared to 35.3 in 2014).
Efforts to Ensure Compliance with APAs
§ 521(b)(2)(F)
As described in § 7.02 (1) of Rev. Proc. 2015-41, APA taxpayers are required to file annual
reports to demonstrate compliance with the terms and conditions of the APA. The filing and
review of annual reports is a critical part 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.
Each report received by the APMA Program is assigned to a designated APMA team leader.
Whenever possible, annual report reviews are assigned to the team leader who worked the case,
or another staff member who is already familiar with the relevant facts and terms of the APA.
Other team leaders and economists may assist the assigned staff member as well. The annual
report is also sent to the field personnel with exam jurisdiction over the taxpayer. The field
0.0
10.0
20.0
30.0
40.0
50.0
Average
Median
Average
Median
Average
Median
Unilateral
Bilateral
Unilateral &
Bilateral
Months to Complete
Type of APA
New
Renewal
New &
Renewal
16
personnel conduct a compliance review and coordinate with APMA personnel to resolve any
questions or problems that might arise.
Nature of Documentation Required in Annual Report
§ 521(b)(2)(D)(xi)
APAs executed in 2015 required taxpayers to provide various documents with their annual
reports, depending on the specific facts of the case
mplete
Type of APA
New
Renewal
New &
Renewal
16
personnel conduct a compliance review and coordinate with APMA personnel to resolve any
questions or problems that might arise.
Nature of Documentation Required in Annual Report
§ 521(b)(2)(D)(xi)
APAs executed in 2015 required taxpayers to provide various documents with their annual
reports, depending on the specific facts of the case. While not every annual report will include
each of the documents listed below the documents listed below are required where the facts
demonstrate a need for such documentation.
1.
Statement identifying all material differences between Taxpayer’s business operations
during APA year and description of Taxpayer’s business operations contained in
Taxpayer’s request for APA. If there have been no such material differences, a statement
to that effect.
2.
Statement of all material changes in the 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.
3.
Description of any failure to meet critical assumptions. If there has been none, a
statement to that effect.
4.
Copy of the APA.
5.
Financial analysis demonstrating Taxpayer’s compliance with TPM.
6.
Organizational chart.
7.
Any change to the taxpayer notice information in section 14 of the APA.
8.
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.
9
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.
9.
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.
10.
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.
11.
Where required by paragraph 5(f) of the APA, certified public accountant’s opinion that
financial statements present fairly the financial position of Taxpayer and the results of its
operations, in accordance with a foreign GAAP.
12.
Where applicable, financial statements as prepared in accordance with a foreign GAAP.
13.
Various work papers.
14.
Where applicable, a review of the financial statements by a certified public accountant.
17
Approaches for Sharing of Currency or Other Risks
§ 521(b)(2)(D)(xii)
In appropriate cases, APAs may provide specific approaches for dealing with currency risk, such
as adjustment mechanisms and/or critical assumptions.
18
APPENDIX 1– Model APA (based on Rev. Proc. 2006-9)
[§ 521(b)(2)(B)]
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
Rev. Proc. 2006-9)
[§ 521(b)(2)(B)]
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:
1.
Covered Transactions. This APA applies to the Covered Transactions, as defined in
Appendix A.
2.
Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for
the Covered Transactions.
19
3.
Term. This APA applies to the APA Term, as defined in Appendix A.
4.
Operation.
a.
Revenue Procedure 2006-9 governs the interpretation, legal effect, and
administration of this APA.
b.
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.
5.
Compliance.
a.
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
-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.
5.
Compliance.
a.
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.
b.
{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.]
c.
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.
d.
If Taxpayer does not comply with the terms and conditions of this APA, then the
IRS may:
i.
enforce the terms and conditions of this APA and make or propose
allocations or adjustments under I.R.C
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.
d.
If Taxpayer does not comply with the terms and conditions of this APA, then the
IRS may:
i.
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.
20
e.
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.
f.
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.
g
turns, 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.
g.
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.
h.
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.
i.
{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.
6.
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.
7.
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
ritical assumption has not been
met, then Revenue Procedure 2006-9, section 11.06, governs.
7.
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.
8.
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.
21
9.
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
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.
22
WITNESS,
The Parties have executed this APA on the dates below.
[Taxpayer Name in all caps]
By:
___________________________
Date: ___________________, 201___
Jane Doe
Sr. Vice President (Taxes)
IRS
By:
___________________________
Date: ___________________, 201___
Hareesh Dhawale
Director, Advance Pricing and Mutual Agreement Program
23
APPENDIX A
COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)
1.
Covered Transactions.
[Define the Covered Transactions.]
2.
APA Term.
This APA applies to Taxpayer’s taxable years ending __________ through ________
(APA Term).
3.
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.
• CUT Method
The TPM is the CUT Method
ears ending __________ through ________
(APA Term).
3.
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.
• CUT 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)
The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for
any APA Year is defined as follows: 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
The 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
24
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
The 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
The TPM is the comparable profits method (CPM)
o 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
The TPM is the comparable profits method (CPM). The profit level indicator is an
operating margin. The Tested Party’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 ___%.
• CPM using a Three-year Rolling Average Operating Margin
PLI
The 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.]
4.
Application of TPM
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.]
4.
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
25
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
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.
5.
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.]
26
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.]
27
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:
1
DS 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:
1.
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.
2.
A table of contents, organized as follows:
3.
Statements that fully identify, describe, analyze, and explain:
a.
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.
b.
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.
c.
Any change to the Taxpayer notice information in paragraph 14 of this APA.
d.
Any failure to meet any critical assumption. If there has been no failure, the
Annual Report will include a statement to that effect.
28
e.
Whether or not material information submitted while the APA Request was
pending is discovered to be false, incorrect, or incomplete.
f
tatement to that effect.
c.
Any change to the Taxpayer notice information in paragraph 14 of this APA.
d.
Any failure to meet any critical assumption. If there has been no failure, the
Annual Report will include a statement to that effect.
28
e.
Whether or not material information submitted while the APA Request was
pending is discovered to be false, incorrect, or incomplete.
f.
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.
g.
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:
i.
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;
iii.
the date(s) and means by which the payments are or will be made; and
iv.
whether or not APA Revenue Procedure was elected pursuant to paragraph
5 of Appendix A and Revenue Procedure 2006-9, section 11.02(3).
h.
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.
i.
Whether Taxpayer contemplates requesting, or has requested, to renew, modify,
or cancel the APA.
4
agraph
5 of Appendix A and Revenue Procedure 2006-9, section 11.02(3).
h.
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.
i.
Whether Taxpayer contemplates requesting, or has requested, to renew, modify,
or cancel the APA.
4.
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.
5.
{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.
6.
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.
29
7.
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.
8.
A copy of the APA and any amendment.
9.
A penalty of perjury statement, executed in accordance with Revenue Procedure 2006-9,
section 11.01(6) and (7).
30
APPENDIX D
DEFINITIONS
The following definitions control for all purposes of this APA. The definitions appear
alphabetically below:
Term
Definition
Annual Report
A report within the meaning of Revenue Procedure 2006-9, section
11.01
y amendment.
9.
A penalty of perjury statement, executed in accordance with Revenue Procedure 2006-9,
section 11.01(6) and (7).
30
APPENDIX D
DEFINITIONS
The following definitions control for all purposes of this APA. The definitions appear
alphabetically below:
Term
Definition
Annual Report
A report within the meaning of Revenue Procedure 2006-9, section
11.01.
APA
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 (TPM)
A transfer pricing method within the meaning of Treasury Regulation
section 1.482-1(b) and 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.
31
Term
Definition
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
ccounting principles.
U.S. Group
Worldwide Group members that are U.S. persons.
31
Term
Definition
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.
32
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.
33
APA Annual Report
Department of the Treasury--Internal Revenue Service
APA No. _______________
SUMMARY
Large Business and International Division
Team Leader ____________________________
Transfer Pricing Operations
Economist _______________________________
Advance Pricing and Mutual Agreement Program
Intl Examiner _____________________________
APA Information
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 o
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
APA date executed: ______________, 201__
Information
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 no
ry 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
by the Taxpayer)
Attach copy of APA
[ ] yes [ ] no
Other APA records and documents included:
Contact Information
Authorized Representative
Phone Number
Affiliation and Address
34
APPENDIX 2 – APMA Contacts
APMA LEADERSHIP
Director
Dhawale, Hareesh
202-515-4306
Assistant Director
McComber, Donna
202-515-4341
Assistant Director
Rock, Peter
415-547-3776
Assistant Director
Wiltshire, Nancy
202-515-4729
ECONOMISTS
Senior Manager
Kwiat, Russell
202-515-4309
Senior Manager
Larson, Charles
312-292-3663
Senior Manager
Lee, Ho Jin
213-833-1166
AUSTRALIA, AUSTRIA, CANADA, KAZAKHSTAN, NETHERLANDS, NEW
ZEALAND
Senior Manager
Cohen, Judith
202-515-4312
INDONESIA, JAPAN, SOUTH AFRICA & THAILAND
Senior Manager (Acting)
Rock, Peter
415-547-3776
CANADA, INDIA, ITALY & LUXEMBOURG
Senior Manager
Mader, Burton
202-515-4319
DENMARK, INDIA, IRELAND, NORWAY, SWEDEN, SWITZERLAND & UK
Senior Manager (Acting)
McComber, Donna
202-515-4341
ARGENTINA, CARIBBEAN, CHINA, GERMANY, MEXICO, PORTUGAL, PUERTO
RICO, SPAIN,
Judith
202-515-4312
INDONESIA, JAPAN, SOUTH AFRICA & THAILAND
Senior Manager (Acting)
Rock, Peter
415-547-3776
CANADA, INDIA, ITALY & LUXEMBOURG
Senior Manager
Mader, Burton
202-515-4319
DENMARK, INDIA, IRELAND, NORWAY, SWEDEN, SWITZERLAND & UK
Senior Manager (Acting)
McComber, Donna
202-515-4341
ARGENTINA, CARIBBEAN, CHINA, GERMANY, MEXICO, PORTUGAL, PUERTO
RICO, SPAIN, VENEZUELA, & EASTERN EUROPE
Senior Manager
Spring, Gregory
202-515-4340
BELGIUM, CANADA, FRANCE, GREECE, HUNGARY & INDIA
Senior Manager
Fouts, Patricia
202-515-4740
GUAM, JAPAN, KOREA, MOROCCO & PHILIPPINES
Senior Manager
Bracken, Dennis
310-414-3617
ISRAEL
Senior Manager
Kwiat, Russell
202-515-4309
As of 2/7/2016
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.