The time required to obtain an APA can vary considerably depending on a number of factors, including the complexity of transactions and problems, the workload of APMA staff assigned to the case and, in bilateral cases, the contractual relationship between the IRS and the affected foreign tax authority. According to statistics published in the IRS announcement and report on the 2018 Advance Price Agreements, the average completion time for APAs concluded in 2018 was 33.4 months for unilateral AAPs and 45.6 months for bilateral APAs. There are many advantages to getting an APA. The APA provides security for transfer pricing issues that might otherwise lead to lengthy disputes with the IRS or foreign tax authorities. APAs can offer a particularly cost-effective solution by providing a high level of security for multiple fiscal years. By ensuring this security, APAs have the added benefit of using financial statements. Another advantage of AAP is the provision of specific back-track procedures that allow the agreed APA method to be applied to resolve outstanding transfer pricing issues in previous open tax years, including issues already under consideration. In addition, bilateral and multilateral APAs resolve transfer pricing issues, both in the United States and in one or more foreign legal systems, on a coordinated basis, avoiding double taxation. A Pre-Pricing Agreement (APA) is an agreement between tax authorities and taxpayers on the future implementation of transfer pricing policies. An APA can be an effective measure to reduce transfer pricing risks for many tax payers, ensuring that the level of future profitability is accepted as appropriate by the tax authorities. APAs may cover transfer prices for transactions with all related parties, including transfers of intangible assets and assets, intercompany services, CSAs and financial transactions, including guarantees and income allocation of a financial institution involved in the global trading of financial instruments. In addition to traditional transfer pricing issues, ASAs may also cover some other tax issues for which compensation principles may be relevant, as well as incidental issues. The subjects initiate the APA collection procedure by submitting an APP application to the APMA program, which meets the substantive requirements of the 2015-41 collection procedure.
The APA application should normally be filed until the taxpayer files his or her income tax return for the first tax year of the APA. However, a policyholder may obtain a 120-day extension to file an APA application by paying the applicable user fee (see below). Bilateral and multilateral APA applications must be filed with the relevant foreign tax authority within 60 days of the application date of the APP application. The APP application contains, among other substantive and procedural requirements, a comprehensive functional and factual analysis and proposals for one or more covered transactions, transfer pricing methods (and economic analyses in support of these methods), critical assumptions and a concept of APP. APA usage fees increased to $113,500 as of January 1, 2019. Renewal AAS and some APAs for small businesses are subject to reduced preferential rates. Download our Transfer Pricing Brochure for more details A pre-price agreement (APA) is a prior agreement between a tax payer and a tax authority on an appropriate transfer pricing method (TPM) for a series of transactions in play for a specified period (“Covered Transactions”). Typically, a bilateral APA is a binding agreement between two tax administrations and the taxpayers concerned.