IRS’s Successful APA Program Faces New Obstacles, Opportunities

Last month, the IRS Advance Pricing and Mutual Agreement program released its annual APA report describing the experience, structure, and activities of the program in 2024. The report indicates that APAs remain an effective, often-used process to avoid transfer pricing disputes, especially as shifting tariff policies could add greater complexity.

Overall, APMA had another successful year in negotiating and resolving APAs with taxpayers and treaty partners. Although the number of executed APAs decreased slightly from 156 in 2023 to 142 in 2024, this figure remained higher than the number of APAs executed on an annual basis during each of 2014 to 2022. This reflects APMA’s continued efforts to improve the efficient and timely resolution of cases.

APMA also reduced its execution time for agreements. The median completion time for all APAs decreased significantly from 42.0 months in 2023 to 33.5 months in 2024. The median completion time for bilateral APAs likewise decreased from 42.6 months in 2023 to 34.8 months in 2024—below the average completion time of 36.8 months reported by the reporting jurisdictions in the OECD’s 2023 APA statistics.

The increase in APMA’s staffing last year likely facilitated this achievement, allowing the program to distribute the increased workload resulting from the continued influx of filings across additional teams and to close cases in a timelier manner. It also reflects concerted efforts to improve efficiency, such as by working closely with taxpayers to better negotiate and finalize cases.

Taxpayers filed 169 complete APA applications in 2024, similar to the prior year’s 167, and with the 42 additional user fee filings, the number of total filings in 2024 surpassed those made in 2023. The number of pending APAs also increased slightly, remaining at the highest level over the last decade and demonstrating a continued need for APMA to resolve outstanding transfer pricing cases.

The 2024 statistics demonstrate that APAs continue to provide significant benefits to taxpayers seeking tax certainty in an environment marked by aggressive and costly audit activities worldwide. Because APMA and other tax authorities have made significant investments to bolster the process, reduce completion times, and enhance case management tools, APAs should be an even more attractive dispute prevention tool for taxpayers.

While APAs continue to be resource-intensive, APMA’s efforts to improve efficiency and reduce execution time help lower the overall costs of seeking an APA for many taxpayers.

Despite last year’s positive developments, the current uncertainty and global political environment may lead to potential challenges. Because of the Department of Government Efficiency-led terminations, several probationary employees at APMA were terminated and additional cuts are anticipated.

This significant headcount reduction likely will impact the ability to efficiently process and execute APAs—possibly forcing APMA to become more selective and accept fewer APA requests. This could negatively affect taxpayers desiring to address significant transfer pricing issues through a transparent and collaborative program.

Recently announced retaliatory tariffs may create additional challenges—and opportunities—for taxpayers seeking APAs. These broad tariffs may impact APMA’s workload and its relationship and negotiations with treaty partners.

Tariffs increase the potential for double taxation and the risk of dispute, particularly where tax authorities have differing views on which related party should bear or share the burden. The White House’s ongoing review of the US-China tax treaty adds an extra layer of complications for many taxpayers interested in pursuing bilateral dispute resolution on issues with China.

Tariffs also could prompt some taxpayers to revise their intercompany pricing, to the extent tariff costs aren’t fully passed onto customers. In such a case, the APA program may be a desirable forum in which to affirmatively discuss and resolve changes to intercompany prices to address the impact of tariffs on a bilateral or multilateral basis. Companies seeking to mitigate audit risk should consider using APAs to obtain tax certainty related to the impact of tariffs, as APMA will work with treaty partners to reach negotiated resolutions on these complex issues.

With these challenges and opportunities in mind, along with the heightened risk of significant transfer pricing disputes, we hope APMA will continue to have the resources to help taxpayers manage and resolve both transfer pricing issues upfront through APAs—as well as transfer pricing and other treaty-related issues on the backend through the mutual agreement procedure.

Considering the many new and outstanding APA requests along with the significant existing inventory of MAP cases, a robust APMA program remains essential to addressing taxpayers’ need for efficient ways to resolve double taxation and other international tax controversies.

APAs offer taxpayers the ability to proactively manage their transfer pricing disputes and achieve certainty for high-value and complex intercompany transactions, given the rising number of high-stakes transfer pricing litigation in the US and beyond. They also minimize the risk of penalties and protracted, resource-intensive disputes in multiple jurisdictions.

APMA’s successes substantiate that the APA process continues to be an excellent forum to achieve certainty on transfer pricing issues on a bilateral and multilateral basis, all while engaging with tax authorities in a transparent and collaborative process.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Amanda Worcester Martin is partner with Baker McKenzie, with focus on corporate and international tax planning and tax dispute resolution.

Wenham Shen is a director of economics with Baker McKenzie, advising multinational clients on a broad range of transfer pricing issues.

Christine Kim is partner with Baker McKenzie, with focus on resolving complex tax disputes and international tax controversies.

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