Monday, April 9, 2012

APAs - IRS 2011 Annual Report Shows Applications & Completions Down.

The IRS completed 43 advance pricing agreements in 2011, down from a total of 69 in 2010, while the number of pending requests increased from 350 in 2010 to 445 in 2011, according to the IRS's annual statutory report on APAs released April 2.

In Announcement 2012-13, IRS attributed the decline in case closures to the amount of staff time directed toward creating the new Advance Pricing and Mutual Agreement (APMA) Program, a merger of the former APA Program with the portion of the Office of U.S. Competent Authority that resolves transfer pricing cases under U.S. treaty mutual agreement procedures.

Acting APMA Director John Hinding, meanwhile, said the slow processing times also may have contributed to the decline in submissions, which in 2011 dropped to 96 from an all-time high of 144 in 2010.

In addition, the decline of APA personnel during 2011, and the record number of new APA applications filed in the past four years, contributed to the slowdown in processing cases. The average time to complete an APA increased from 37.2 months in 2010 to 40.7 months in 2011, according to the report.

As of Jan. 25, 2012, for the resolution of transfer pricing cases, U.S. Competent Authority employed seven managers, 57 analysts, five economists, and five support staff. These personnel, combined with the APA personnel, form the APMA program.

The APMA also will handle negotiations for transfer pricing and other allocation adjustments arising out of domestic and foreign audits—so-called double tax cases.

“These cases were previously handled, along with APA negotiations with treaty partners, by Competent Authority,” he explained. “So the staff will be employed both for APA and double tax work.”

The growing backlog of cases may have contributed to the decline in submissions in 2011.

Further, the program has become aggressive about including additional years in completed APAs. Because it takes several years to process an APA application, the term of the initial request in many cases is nearly expired by the time the application is approved.

The remedy has been to automatically add additional years to the term, thus negating the need for taxpayers to file for renewal almost immediately.

The impact of the APMA reorganization might not be seen in 2012, but certainly by 2013 you'll see a big difference.

According to the report, APMA expects APA applications to rebound in 2012, possibly reaching the same high levels as in 2008-2010.

In addition, the report noted that:
• of the 96 APA applications filed in 2011, 20 were unilateral and 76 were bilateral;
• the 43 APAs completed included 15 renewals and one revised or amended APA;
• the 445 pending requests include 258 requests for new APAs and 187 requests for renewals;
• two APAs were canceled or revoked; and
• nine APA applications were withdrawn.

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