E Transfer Pricing Advance Pricing Agreements Bob Ackerman John
Michaelson Advance Pricing Agreements Bob Ackerman John
Michaelson
Slide 2
2 Transfer Pricing Disputes Factually intensiveFactually
intensive Frequently contentious and controversialFrequently
contentious and controversial Time consumingTime consuming
AdversarialAdversarial Arbitrary resolutionsArbitrary resolutions
Expensive from both taxpayers and taxing authoritys
perspectiveExpensive from both taxpayers and taxing authoritys
perspective Factually intensiveFactually intensive Frequently
contentious and controversialFrequently contentious and
controversial Time consumingTime consuming AdversarialAdversarial
Arbitrary resolutionsArbitrary resolutions Expensive from both
taxpayers and taxing authoritys perspectiveExpensive from both
taxpayers and taxing authoritys perspective
4 Overview of APAs What is an APA?What is an APA?
Advantages/Disadvantages of an APA?Advantages/Disadvantages of an
APA? How does the APA process work?How does the APA process work?
What is an APA?What is an APA? Advantages/Disadvantages of an
APA?Advantages/Disadvantages of an APA? How does the APA process
work?How does the APA process work?
Slide 5
5 What is an APA A non-adversarial and efficient process
through which a taxpayer can enhance the predictability of the tax
treatment of its intercompany transactions.A non-adversarial and
efficient process through which a taxpayer can enhance the
predictability of the tax treatment of its intercompany
transactions.
Slide 6
6 1. To arrive at an understanding on three basic issues the
factual nature of the intercompany transactions to which the APA
applies an appropriate transfer pricing method (TPM) applicable to
those transactions the expected range of results from applying the
TPM to the transactions 2. To do so in an environment that
encourages common understanding and cooperation 1. To arrive at an
understanding on three basic issues the factual nature of the
intercompany transactions to which the APA applies an appropriate
transfer pricing method (TPM) applicable to those transactions the
expected range of results from applying the TPM to the transactions
2. To do so in an environment that encourages common understanding
and cooperation What is an APA (cont.)
Slide 7
7 3. To come to an agreement in an expedited fashion 4. To come
to an agreement in a cost effective fashion 3. To come to an
agreement in an expedited fashion 4. To come to an agreement in a
cost effective fashion
Slide 8
8 APAs: Potential Advantages Avoids protracted disputesAvoids
protracted disputes Educates taxing authoritiesEducates taxing
authorities Offers flexibilityOffers flexibility Is an efficient
use of resources (application to back years)Is an efficient use of
resources (application to back years) Provides certaintyProvides
certainty Eliminates the risk of double taxationEliminates the risk
of double taxation Avoids protracted disputesAvoids protracted
disputes Educates taxing authoritiesEducates taxing authorities
Offers flexibilityOffers flexibility Is an efficient use of
resources (application to back years)Is an efficient use of
resources (application to back years) Provides certaintyProvides
certainty Eliminates the risk of double taxationEliminates the risk
of double taxation
Slide 9
9 APAs: Potential Disadvantages Locked into TPMLocked into TPM
Disclosure to government of sensitive dataDisclosure to government
of sensitive data Raises other issuesRaises other issues Locked
into TPMLocked into TPM Disclosure to government of sensitive
dataDisclosure to government of sensitive data Raises other
issuesRaises other issues
Slide 10
10 How does the APA Process Work Prefiling conferencePrefiling
conference APA proposalAPA proposal Evaluation and negotiation
processEvaluation and negotiation process The agreementThe
agreement AdministrationAdministration RenewalRenewal Prefiling
conferencePrefiling conference APA proposalAPA proposal Evaluation
and negotiation processEvaluation and negotiation process The
agreementThe agreement AdministrationAdministration
RenewalRenewal
Slide 11
11 APA Prefiling Conference Scope of agreementScope of
agreement TPMTPM Duration of agreementDuration of agreement Rough
formatRough format Soft dataSoft data Prior year exam statusPrior
year exam status Scope of agreementScope of agreement TPMTPM
Duration of agreementDuration of agreement Rough formatRough format
Soft dataSoft data Prior year exam statusPrior year exam
status
Slide 12
12 APA Proposal General factsGeneral facts TPMTPM Specific
facts and circumstances relevant to TPMSpecific facts and
circumstances relevant to TPM Legal discussionsLegal discussions
Critical assumptionsCritical assumptions Annual report
informationAnnual report information Term of agreementTerm of
agreement General factsGeneral facts TPMTPM Specific facts and
circumstances relevant to TPMSpecific facts and circumstances
relevant to TPM Legal discussionsLegal discussions Critical
assumptionsCritical assumptions Annual report informationAnnual
report information Term of agreementTerm of agreement
Slide 13
13 NegotiationsNegotiations On-site visitsOn-site visits
Additional data requestsAdditional data requests
ConferencesConferences Clarification of facts Negotiation of
settlement Contract drafting On-site visitsOn-site visits
Additional data requestsAdditional data requests
ConferencesConferences Clarification of facts Negotiation of
settlement Contract drafting
Slide 14
14 The Agreement PartiesParties Covered transactionsCovered
transactions TPMTPM TermTerm APA recordsAPA records Critical
assumptionsCritical assumptions Compensating
adjustmentsCompensating adjustments Annual reportAnnual report
PartiesParties Covered transactionsCovered transactions TPMTPM
TermTerm APA recordsAPA records Critical assumptionsCritical
assumptions Compensating adjustmentsCompensating adjustments Annual
reportAnnual report
16 RenewalRenewal Same factsSame facts Expedited Abbreviated
APA proposal Different facts - just dependsDifferent facts - just
depends Same factsSame facts Expedited Abbreviated APA proposal
Different facts - just dependsDifferent facts - just depends
Slide 17
17 Future State Participation in APAs Joint Federal/State APA
ProgramJoint Federal/State APA Program Simultaneous resolution of
Federal and State transfer pricing issuesSimultaneous resolution of
Federal and State transfer pricing issues Joint Federal/State APA
ProgramJoint Federal/State APA Program Simultaneous resolution of
Federal and State transfer pricing issuesSimultaneous resolution of
Federal and State transfer pricing issues
Slide 18
Future State Participation in APAs: State Benefits Training on
how to conduct Advance Pricing Agreement negotiationsTraining on
how to conduct Advance Pricing Agreement negotiations Knowledge of
How to Conduct an APA InvestigationKnowledge of How to Conduct an
APA Investigation Intimate Knowlege of Select IndustriesIntimate
Knowlege of Select Industries Detailed Knowledge of Particular
TaxpayersDetailed Knowledge of Particular Taxpayers Training on how
to conduct Advance Pricing Agreement negotiationsTraining on how to
conduct Advance Pricing Agreement negotiations Knowledge of How to
Conduct an APA InvestigationKnowledge of How to Conduct an APA
Investigation Intimate Knowlege of Select IndustriesIntimate
Knowlege of Select Industries Detailed Knowledge of Particular
TaxpayersDetailed Knowledge of Particular Taxpayers 18
Slide 19
Future State Participation in APAs: Taxpayer Benefits Cost
Effective Way of Resolving Transfer Pricing IssuesCost Effective
Way of Resolving Transfer Pricing Issues Certainty of Tax
TreatmentCertainty of Tax Treatment Simultaneous Resolution of
Similar Federal and State IssuesSimultaneous Resolution of Similar
Federal and State Issues Cost Effective Way of Resolving Transfer
Pricing IssuesCost Effective Way of Resolving Transfer Pricing
Issues Certainty of Tax TreatmentCertainty of Tax Treatment
Simultaneous Resolution of Similar Federal and State
IssuesSimultaneous Resolution of Similar Federal and State Issues
19
Slide 20
Future State Participation in APAs: Federal Benefits Increased
Awareness of Federal APA Program.Increased Awareness of Federal APA
Program. Increased Cooperation with State taxing
Authorities.Increased Cooperation with State taxing Authorities.
Increased Awareness of Federal APA Program.Increased Awareness of
Federal APA Program. Increased Cooperation with State taxing
Authorities.Increased Cooperation with State taxing Authorities.
20
Slide 21
Future State Participation in APAs: State Concerns Increased
Manpower and Infrastructure SupportIncreased Manpower and
Infrastructure Support Privacy ConcernsPrivacy Concerns Federal
Influence over State Taxing DecisionsFederal Influence over State
Taxing Decisions State involvement with Federal NegotiationsState
involvement with Federal Negotiations Increased Manpower and
Infrastructure SupportIncreased Manpower and Infrastructure Support
Privacy ConcernsPrivacy Concerns Federal Influence over State
Taxing DecisionsFederal Influence over State Taxing Decisions State
involvement with Federal NegotiationsState involvement with Federal
Negotiations 21
Slide 22
22 ConclusionConclusion Flexible & common sense
approachFlexible & common sense approach Consensus
seekingConsensus seeking Effective problem solving toolEffective
problem solving tool Avoids audits Provides certainty Reduces
taxpayer burden Cost-effective Flexible & common sense
approachFlexible & common sense approach Consensus
seekingConsensus seeking Effective problem solving toolEffective
problem solving tool Avoids audits Provides certainty Reduces
taxpayer burden Cost-effective
