By Julie Martin, MNE Tax
The US IRS entered into 120 advance pricing agreements (APAs) in 2019, increasing its annual output as compared to the previous five years, IRS statistics published on April 6 reveal.
The APA backlog was 454 as of December 31, 2019, however, which is virtually identical to the previous year’s backlog, according to the statistics, published in IRS Announcement 2020-2.
APAs are binding agreements between the IRS and a multinational group taxpayer that are designed to resolve future year transfer pricing issues. Often one or more foreign governments are also a party to an APA agreement.
APAs executed in 2019 totaled 120, an improvement over the annual output of the previous five years. A total of 107 APAs were executed in 2018, 116 in 2017, 86 in 2016, 110 in 2015, and 101 in 2014. In 2012 and 2013, the IRS had a higher yearly output, with 140 and 145 APAs executed those years, respectively.
About 60 percent of APAs executed in 2019 were renewals, as was the case in the three previous years. About one-quarter of the executed APAs included rollback years.
APA backlog
According to the statistics, IRS’s APA backlog was 454 as of December 31, 2019, almost identical last year’s backlog of 458 APAs.
On December 31, 2017, the backlog was much lower, with only 386 APAs pending. The IRS attributed the increased backlog in 2018 to a surge in applications that year.
The IRS said that as of December 31, 2019, 28 percent of the unresolved bilateral APAs involved Japan while 21 percent involved India.
Time to complete/new applications
The median time required for the IRS to complete an APA in 2019 was 38.8 months. This was an improvement over the 2018 figure, where median time to complete was 40.2 months, but worse than the four years prior to that. In 2017, 2016, 2015, and 2014, the median time to complete was 33.8 months, 32.8 months, 31.9 months, and 35.3 months, respectively.
The IRS stats also reveal that in 2019, a total of 121 new APA applications were filed, far fewer than the 203 applications filed in 2018, but consistent with earlier periods. According to IRS data, in 2011–2017, new APA applications numbered 96, 126, 111, 108, 183, 98, and 101 respectively.
Of the 121 new APA applications filed in 2019, 17 were unilateral, 96 were bilateral, and 8 were multilateral.
As in prior years, the largest number of bilateral APA applications involved Japan, with 32 requests involving that country. This was followed by bilateral APAs involving Canada, which comprised 14 percent.
US transfer pricing methods
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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