Practical Decision-Making Approach for Transfer Pricing APAs

Multinational enterprises should follow a practical approach in determining whether to enter into an advance pricing agreement (APA). The IRS established the APA program to allow taxpayers to enter into a prospective agreement with the IRS, and possibly other countries, regarding taxpayers’ transfer pricing issues. An APA agreement specifies the covered transactions, transfer pricing methodology, APA term, operational and compliance provisions, appropriate adjustments, critical assumptions regarding future events, required APA records, and annual reporting responsibility.

Taxpayer pursuit of an APA is voluntary and requires payment of a user fee and the commitment of substantial taxpayer funds and efforts. Therefore, taxpayers ...