How to Utilize Advance Pricing Agreements Under United States Law

Multinational enterprises use advance pricing agreements to help provide certainty that tax authorities will not challenge the validity of transfer pricing methods between related parties and to help avoid double taxation. This article discusses how MNEs can use such APAs under US law.

I. Transfer Price Methodologies Recognized Under US Law

Section 1.482-3 of the Treasury Regulations introduces the various methods which may be used to determine the proper arm’s-length amount charged in a controlled transaction. There are six methods:

1. Comparable uncontrolled price (CUP) method;
2. Resale price method;
3. Cost-plus method;
4. Comparable profits method (see 26 C.F.R. §1.482-5);
5. Profit split method (see 26 C.F.R. §1.482-6); and
6. Unspecified methods.

In addition, there is the comparable uncontrolled transaction (CUT) method. 26 C.F.R. §1.482-4(c)(ii).

Finally, there are four additional methods which apply specifically to transactions involving services. 26 C.F.R. §1.482-9(b)(e).

See Patrick Beattie, What Are The US’s Transfer Pricing Methodologies, Tax Mgmt. Int’l J. (Apr. 17, 2025).

II. Brief Overview of Advance Pricing Agreements Under US Law

A detailed presentation of the process for obtaining an advance pricing agreement from the IRS is beyond the scope of this article.However, this article offers a brief overview of the process that a practitioner may find helpful as a starting point should that individual have a client who needs to secure an APA with the US Treasury Department.

A. Advance Pricing Agreements Fundamentals
The essential processes for obtaining an advance pricing agreement have remained relatively constant over the last thirty. This process involves a number of steps.

1. Pre-Filing Process.
(a) US taxpayers and related foreign taxpayers consider whether the APA process is an appropriate process in which to achieve their desired goals.
(b) This process includes analyzing specific desired outcomes and the probabilities of achieving these outcomes. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

2. Written Request for an APA Directed to the IRS
(a) The written request identifies details with respect to both the controlled taxpayers as well as the proposed transaction that will be subject to the proposed APA.
(b) Proposed transfer pricing methods for the proposed APA transactions.
(c) In most cases, a proposed range of arm’s-length results to be agreed upon in advance.
(d) Extensive documentation and analysis to support the taxpayer’s proposal. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

3. Due Diligence conducted by the IRS
The due diligence conducted by the IRS can either be in the form of written questions, on site interviews or both. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

4. Conferences
Conferences will be held to discuss the APA request, to explain responses to questions, and to negotiate an IRS position. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

5. Proposed Bilateral and Multilateral APAs
(a) Negotiations between the IRS and one or more competent authority.
(b) Mutual agreement between the IRS and one or more competent authority. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

6. Drafting of the APA Document
Drafting will include any relevant rollback documents. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

7. Adherence to any Post-Filing Procedures
(a) Filing of an APA annual report.
(b) Filing of any adjustment of the APA.
(c) Adherence to any cash repatriation procedures. See Michael Patton, 6920 T.M., Foreign Income: Transfer Pricing: Advance Pricing Agreements.

B. Revenue Procedure 2015-41

1. A revenue procedure is an official statement of a procedure published in the IRS Bulletin that either affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations or, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge. See Rev. Proc. 89-14, 1989-8 I.R.B. 20; IRS, Understanding IRS guidance—A brief primer.

2. A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, IRS personnel and tax professionals. For example, a revenue ruling may hold that taxpayers can deduct certain automobile expenses. See IRS, Understanding IRS guidance—A brief primer.

3. Rev. Proc. 2015-41 is divided into two distinct parts:
(a) The revenue procedure; and
(b) The appendix.

4. Rev. Proc. 2015-41 sets forth general rules and procedures for:
(a) Submitting pre-filing documents;
(b) Submitting complete APA requests; and
(c) Processing of APA requests.

5. The appendix is a step-by-step set of instructions for assembling a request for an advance pricing agreement with the IRS. The appendix is divided into four (4) main sections:
(a) Content of complete APA requests;
(b) Manner and media of APA request filings;
(c) User fees; and
(d) Addresses and contract information. See Rev. Proc. 2015-41, Appendix, §§1-4.

6. Section 1 of Rev. Proc. 2015-41
(a) Addresses the purpose of (and background history for) obtaining an advance pricing agreement under US law. Also addresses the rules of construction and definitions. See Rev. Proc. 2015-41, §1.01-§1.04.
(b) The advance pricing and mutual agreement program (APMA) is first identified in the definitions section. The APMA was established by the IRS in February 2012 to oversee the APA Program and to act as the competent authority responsible for handling cases arising under the business profits and associated enterprises articles under US tax treaties. See generally Rev. Proc. 2015-41, §1.04.
(c) It is noteworthy that in the definitions of §1, the following terms are identified:
(1) Bilateral APA;
(2) Multilateral APA; and
(3) OECD Guidelines. See Rev. Proc. 2015-41, §1.04.
(d) It is also noteworthy that the term “comparable” is not included in the definitions section.

7. Section 2 of Rev. Proc. 2015-41
(a) Addresses the APMA’s contact information as well as the scope of APAs in general. See Rev. Proc. 2015-41, §2.01-§2.03.
(b) As to the issue of scope, §2 contains the following relevant sentence: “In evaluating the taxpayer’s request, in some cases, [the] APMA may also need to consider additional, interrelated issues, additional taxable years (including potential rollback years)…or additional treaty countries…in order to reach a resolution that is in the interest of principled, effective, and efficient tax administration.” See Rev. Proc. 2015-41, §2.02(4)(a).
(1) Section 2 provides the following as an example of an interrelated issue:
(i) Company No. 1 proposes to cover the expenses of Company No. 2’s licensing of intangible property to Company No. 3. All three companies are in the same group (i.e., they are all related). However, earlier in the year, Company No. 3 had sold the intangible property to Company No. 2.In this type of situation, APMA might be inclined to consider that the ongoing license should be evaluated in a manner consistent with the evaluation performed in the initial transaction between Companies Nos. 2 and 3. See Rev. Proc. 2015-41, §2.02(4)(b)(i).
(2) Other examples of the types of APA requests that could involve interrelated matters are those which a pre-filing memorandum is required, such as:
(i) Cases involving transactions within a global trading arrangement;
(ii) Cases involving hybrid entities (a hybrid entity is a business entity that is treated as transparent for tax purposes in one country but is also treated as non-transparent for tax purposes in another country); and
(iii) Cases involving business entities which are disregarded for tax purposes. See Rev. Proc. 2015-41, §2.02(4)(b)(v).
(3) As to rollbacks, an APA can be “rolled back” to cover one or more earlier taxable years.
(i) Rollback years are typically the subject of an ongoing or anticipated competent authority under Rev. Proc. 2015-40.
(ii) Section 2 of Rev. Proc. 2015-41 provides that the APMA will endeavor to address APA requests and competent authority requests under Rev. Proc. 2015-40 in a way that will achieve substantive and procedural consistency between the APA process and the competent authority process under Rev. Proc. 2015-40. See Rev. Proc. 2015-41, §2.02(4)(c).
(c) Section 2 of Rev. Proc. 2015-41 establishes a preference for bilateral and multilateral APAs. See Rev. Proc. 2015-41, §2.02(4)(d).
(d) Section 2 of Rev. Proc. 2015-41 also provides the general requirements for initiating and continuing an APA request. See Rev. Proc. 2015-41, §2.03(1)-(4).

8. Section 3 of Rev. Proc. 2015-41
(a) Sets forth the procedures, rules and guidelines for filing an APA request. See Rev. Proc. 2015-41, §3.01.
(b) The section covers the following:
(1) Pre-filing requirements and requests for pre-filing guidance:
(i) Requests for pre-filing conferences;
(ii) Mandatory pre-filing memoranda;
(iii) Optional pre-filing memoranda;
(iv) Contents of both mandatory and optional pre-filing memoranda;
(v) Place for submission of pre-filing memoranda;
(vi) Actions taken with respect to pre-filing conferences and memoranda; and
(vii) Informal advice in pre-filing conferences. See Rev. Proc. 2015-41, §3.02(3)-(9).
(2) Time for filing. See Rev. Proc. 2015-41, §3.03(1)-(3).
(3) Content and form of complete APA requests:
(i) General requirements; and
(ii) Abbreviated APA requests. See Rev. Proc. 2015-41, §3.04(1)-(3).
(4) User fee information. See Rev. Proc. 2015-41, §3.05(1)-(3).
(5) APA request used as a protective claim.
(i) A protective claim for credit or refund may be made by including the claim in a bilateral or multilateral APA request. See Rev. Proc. 2015-41, §3.06.
(6) Effect of filing. See Rev. Proc. 2015-41, §3.07.
(7) The APA term. See Rev. Proc. 2015-41, §3.08.
(8) Requested and supplemental items. See Rev. Proc. 2015-41, §3.09(1)-(2).
(9) Procedure regarding corrected and updated information. See Rev. Proc. 2015-41, §3.10(1)-(3).
(10) Procedure for withdrawing an APA request. See Rev. Proc. 2015-41, §3.11.

9. Section 4 of Rev. Proc. 2015-41
(a) Sets forth what the APMA will do after it receives an APA request. See Rev. Proc. 2015-41, §4.01-06.
(b) In most cases, the initial step in the APA process will be to hold an opening conference. See Rev. Proc. 2015-41, §4.03(1).
(c) The APMA team will forego an opening conference only if it has no substantial disagreement with what the taxpayer proposes. See Rev. Proc. 2015-41, §4.03(1).
(d) An opening conference is intended to facilitate the APMA team’s understanding of the facts and circumstances underlying the taxpayer’s proposed covered issue(s), terms and conditions. See Rev. Proc. 2015-41, §4.03(2).
(e) The opening conference may involve a discussion of the taxpayer’s reasons for its selection of its proposed methodology. See Rev. Proc. 2015-41, §4.03(2).
(f) The opening conference can also cover procedural matters, including whether a case plan will facilitate the APMA team’s evaluation of the taxpayer’s request and, if so, at what point in the APA process may it be useful for the APMA team to adopt a case plan. See Rev. Proc. 2015-41, §4.03(3).
(g) In preparing a case plan, the APMA team and the taxpayer will discuss milestones, which often will depend on the nature of the covered issue(s), the quality of the APA request and any responses already provided by the taxpayer. See Rev. Proc. 2015-41, §4.03(3).
(h) In evaluating a bilateral or multilateral request, the APA team will consider requests from – and may invite or require – the taxpayer to make presentations jointly to the APMA team and to the foreign competent authority.
(1) The provision of such information simultaneously to all competent authorities could facilitate efficient case processing.
(2) The APMA team will consult as needed with the foreign competent authority/authorities as to its interest in joint presentations, and will notify the taxpayer accordingly.
(3) The APMA team may issue a memorandum simultaneously to the taxpayer and the foreign competent authority/authorities for their discussion and consideration towards reaching a resolution.
(4) The APMA team will then work with the foreign competent authority/authorities to reach a resolution that will underlie the APA which is to be entered between the taxpayer and the IRS.
(5) The mutual agreement procedure article in arbitration treaties requires competent authorities refer certain cases to mandatory arbitration in the event direct discussions between the competent authorities do not lead to a mutual agreement within a prescribed period of time. See Rev. Proc. 2015-41, §4.04(1)(3)-(4).
(i) Many of the steps involved in the evaluation and presentation stage of the unilateral APA process are the same as the evaluation and presentation stage of the bilateral and multilateral APA process. See Rev. Proc. 2015-41, 4.05.
(j) The APMA may deny or discontinue the APA process if the taxpayer fails to include required materials. See Rev. Proc. 2015-41, §4.02(1).
(k) The APMA will terminate the APA process for a requested unilateral APA if an agreement cannot be reached on the proposed APA’s terms. See Rev. Proc. 2015-41, §4.02(1).

10. Section 5 of Rev. Proc. 2015-41
(a) Addresses the procedure used with regard to rollbacks. See Rev. Proc. 2015-41, §5.02(1)-(7).
(b) An APA is primarily a means to resolve coverable issues for prospective years. See Rev. Proc. 2015-41, §5.02(1).
(c) However, an APA may apply the covered methods to one or more earlier rollback years. Potential modifications may, of course, be necessary. See Rev. Proc. 2015-41, §5.02(1).
(d) A rollback request made by the taxpayer must include the same type of information regarding the proposed rollback years that is required to be submitted regarding the proposed prospective years. See Rev. Proc. 2015-41, §5.02(3).
(e) Typically, the APMA will not agree to cover a closed year with a rollback of a unilateral APA request. This revenue procedure does provide, however, that there are exceptions for unusual situations. See Rev. Proc. 2015-41, §5.02(4).
(f) For a rollback which is requested for a proposed bilateral or multilateral APA, the APMA team will agree to cover an open filed year if the APMA agrees to accept a competent authority or accelerated competent authority procedure (ACAP) request covering such year. See Rev. Proc. 2015-41, §5.02(4).
(g) Regardless of whether the taxpayer pursues a rollback request, the APMA team handling an APA request has the power to reserve the right to coordinate with applicable IRS offices to pursue a rollback to any and all of the taxpayer’s open back years. See Rev. Proc. 2015-41, §5.02(5).
(h) In general, the APMA team will consider taking such action where there is sufficient similarity in relevant facts and circumstances across the proposed prospective years and the taxpayer’s open back years. See Rev. Proc. 2015-41, §5.02(5).

11. Section 6 of Rev. Proc. 2015-41
(a) Addresses the legal effect of an APA. See Rev. Proc. 2015-41, §6.01-05.
(b) If the taxpayer complies with the APA’s terms and conditions, the IRS will not contest the application of the covered method(s) to the covered issue(s) of the APA, except as provided in Rev. Proc. 2015-41. See Rev. Proc. 2015-41, §6.02.
(c) The taxpayer otherwise remains subject to U.S. income tax laws and applicable U.S. tax treaties. See Rev. Proc. 2015-41, §6.02.
(d) Unless otherwise provided by written agreement or regulations, the IRS and the taxpayer may not introduce the APA or non-factual oral and written representations made in conjunction with the APA request as evidence in any judicial or administrative proceeding regarding any tax year, issue or person not covered by the APA. See Rev. Proc. 2015-41, §6.04.

12. Section 7 of Rev. Proc. 2015-41
(a) Addresses the administrative requirements of an executed APA. See Rev. Proc. 2015-41, §7.01-06.
(b) This section also addresses adjustments and repatriation of funds. See Rev. Proc. 2015-41, §7.01(2)(a)-(c).
(c) In some cases during the process with the AMPA, reporting for a given year will require adjustments to the amounts shown on the taxpayer’s books and records for that particular year and/or the amounts reflected on a U.S. tax return. See Rev. Proc. 2015-41, §7.01(1).
(d) This section of the Revenue Procedure only applies to adjustments that apply from covering a particular transfer pricing method that addresses the allocation of income, deductions, credits, allowances, basis, or any other item or element affecting taxable income between members of a controlled group. For U.S. tax purposes, any allocation will be governed by 26 U.S.C. §482 or 26 U.S.C. §367(d). See Rev. Proc. 2015-41, §7.01(2)(a)-(c).
(e) Any repatriation of funds resulting from the entry of an APA will be governed by the following:
(1) Rev. Proc. 99-32;
(2) Rev. Proc. 2015-40;
(3) Rev. Proc. 99-32; and
(4) Any successor guidance. See Rev. Proc. 2015-41, §7.01(2)(b)-(c).
(f) An APA annual report must be filed for each year the APA is in existence. See Rev. Proc. 2015-41, §7.02(1).
(g) Once agreed upon, the IRS will not reconsider a covered transfer pricing method. However, the IRS can require the taxpayer to establish the following:
(1) Compliance with the APA’s terms and conditions;
(2) The accuracy of the APA’s annual report’s material representations; and
(3) The correctness of the supporting data and computations. See Rev. Proc. 2015-41, §7.03(1).
(h) The taxpayer must maintain books and records that are sufficiently detailed to verify that it has complied with the APA’s terms and conditions. See Rev. Proc. 2015-41, §7.04(1).
(i) An APA may be revised by agreements of the parties. If the APMA team assigned to the APA agrees to a proposed revision to either a bilateral or multilateral APA, the APMA will seek the consent of the applicable foreign competent authority/authorities with respect to the revision. See Rev. Proc. 2015-41, §7.05(1)-(2).
(j) The APMA team assigned to a particular APA may revoke the APA due to the following actions by the taxpayer: (1) fraud; (2) malfeasance; or (3) disregard of the APA’s terms. Fraud and malfeasance are defined pursuant to 26 U.S.C. §7121. See Rev. Proc. 2015-41, §7.06(1). If an APA is revoked, the revocation relates back to the first day of the first year of the APA. See Rev. Proc. 2015-41, §7.06(6).

13. Section 8 of Rev. Proc. 2015-41
Pertains to the renewal of the APA. See Rev. Proc. 2015-41, §8.01-02).

14. Section 9 of Rev. Proc. 2015-41
Establishes that all information regarding an APA is confidential. See Rev. Proc. 2015-41, §9.01-04.

15. Section 10 of Rev. Proc. 2015-41
Pertains to the effect other documents may have on the APA. See Rev. Proc. 2015-41, §10.

16. Section 11 of Rev. Proc. 2015-41
Pertains both to the effective date of the APA as well as to transition rules. See Rev. Proc. 2015-41, §11.01-02.

17. Section 12 of Rev. Proc. 2015-41
Pertains to the Paperwork Reduction Act. See Rev. Proc. 2015-41, §12.

18. Section 13 of Rev. Proc. 2015-41
Pertains to drafting information. See Rev. Proc. 2015-41, §13.

C. Identification of Comparables
As previously noted, there are a number of transfer pricing methodologies that a U.S.-based member of an MNE can utilize in a controlled transaction. 26 C.F.R. §1.482-3(b)-(e); 26 C.F.R. §1.482-4(c); 26 C.F.R. §1.482-5(a)-(e); 26 C.F.R. §1.482-6(a)-(d). As to methods regarding services, the treasury regulations also recognize a number of additional methods. 26 C.F.R. §1.482-9(b)-(e).

All transfer pricing methodologies utilize comparables. Moreover, all methods—with the exception of the comparable profit split allocation analysis and the residual profit split allocation analysis—utilize the range requirement in a comparable analysis.

When considering comparables for use in a controlled transaction where an APA is ultimately sought, the U.S. taxpayer should remain cognizant of the two distinct levels of guidance provided by the treasury regulations.

1. First Level of Guidance under the Treasury Regulations
First, 26 C.F.R. §1.482-1 sets forth the definition and relevance of comparability. 26 C.F.R. §1.482-1(c)(2)(i); 26 C.F.R. §1.482-1(d)(1)(i)-(v).

Next, 26 C.F.R. §1.482-1 establishes the standard of comparability. 26 C.F.R. §1.482-1(d)(2).

Section 1.482-1 provides a number of factors to be used in determining comparability. To begin, there is the functional analysis. Under this analysis, the economically significant activities undertaken or to be undertaken by both controlled and uncontrolled taxpayers are examined. The activities include: (1) research and development; (2) product design and engineering; (3) manufacturing, production and process engineering; (4) product fabrication, extraction and assembly; (5) purchasing and materials management; (6) marketing and distribution functions; (7) transportation and warehousing; and (8) managerial, legal, accounting, finance and personnel services. 26 C.F.R. §1.482-1(d)(3)(i)(A)-(H).

The treasury regulations provide that significant contractual terms in both controlled and uncontrolled transactions can be important when considering comparables. Terms which may be considered relevant include: (1) the form of consideration charged or paid; (2) sales or purchase volume; (3) the scope and terms of any warranties; (4) rights to updates, revisions and modifications; (5) the duration of the agreement (if any); (6) ongoing business relationships; and (7) extension of credit and payment terms. 26 C.F.R. §1.482-1(d)(3)(ii)(A)(1)-(7).

Continuing, the comparison of the significant risks that could affect the prices which would be charged or paid, or the profits that would be earned, in a controlled and an uncontrolled transaction are significant comparable elements. Risks recognized under the treasury regulations include: (1) market risks, including fluctuations in cost, demand, pricing, and inventory levels; (2) risks associated with the success or failure of research and development activities; (3) financial risks, including fluctuations in foreign currency rates of exchange and interest rates; (4) credit and collection risks; (5) product liability risks; and (6) general business risks related to the ownership of plant, property and equipment. 26 C.F.R. §1.482-1(d)(3)(iii)(A)(1)-(6).

Finally, determining the degree of comparability between controlled and uncontrolled transactions requires a comparison of the significant economic conditions which would affect the prices that would be charged or paid, or the profit which would be earned in each of these transactions. Significant economic factors include: (1) similarity of geographic markets; (2) relative size of each market; (3) level of the market; (4) relevant market share; (5) location specific costs; (6) extent of competition in each market; (7) economic condition of the particular industry; and (8) alternatives realistically available to buyer and seller. 26 C.F.R. §1.482-1(d)(3)(iv)(A)-(H).

2. Second Level of Guidance Under the Treasury Regulations
Each transfer pricing method provides guidance as to comparability analysis. See Patrick Beattie, What Are The US’s Transfer Pricing Methodologies?, Tax Mgmt. Int’l J. (Apr. 17, 2025); 26 C.F.R. §1.482-3(b)-(e); 26 C.F.R. §1.482-4(c); 26 C.F.R. §1.482-5(a)-(e); 26 C.F.R. §1.482-6(a)-(d); 26 C.F.R. §1.482-9(b)-(e).

3. APA Study Guide
The APA Study Guide offers practical advice to APA program staff on substantive issues in negotiating APAs. Specifically, it provides IRS personnel with additional guidance regarding a number of majorsubstantive issues, including: (1) the selection of comparables; (2) the determination of the years over which comparables’ results are to be analyzed; and (3) the adjustment the comparable results due to differences with the tested party’s range of arm’s-length results. See IRS APA Study Guide, p. 1.

When considering an APA as an option, a U.S. tax practitioner would be well served by reviewing the APA Study Guide prior to entering into preliminary negotiations with the IRS. The Guide provides valuable insight into how the IRS initially identifies and later prioritizes and analyzes comparables. Specifically, the Guide addresses the following: (1) the search for potential comparables; and (2) the criteria used in the selection of comparables. The Guide is also very helpful in identifying and analyzing other APA-related issues. See IRS APA Study Guide, p. 28-p. 33.

The Dutch perceive an APA as an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria which includes: (1) comparables; (2) appropriate adjustments thereto; and (3) critical assumptions as to future events. Essentially, an APA is an official determination of pricing for controlled transactions over a fixed period of time. See OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, ¶4.134 (2022).

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

Patrick Beattie‘s practice areas include tax planning, tax controversy, estate planning, insurance coverage actions, toxic tort litigation, and commercial litigation in the Philadelphia area.

This article, initially prepared as a continuing legal education class at the Jenkins Law Library in Philadelphia in 2022, has been extensively modified and additional sections, including content on the revised 2022 OECD TP Guidelines and the Dutch Ministry of Finance’s new decree replacing Decree 2018/6865, have been added prior to publication. The information contained herein is of a general nature and based on authorities that are subject to change. This article represents the views of the author only and are for informational purposes only.

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