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Transfer Pricing Advance Pricing Agreements Bob Ackerman John Michaelson Transfer Pricing Disputes Factually intensive Frequently contentious and controversial Time consuming Adversarial Arbitrary resolutions Expensive from both taxpayer’s and taxing authority’s perspective

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Presentation Transcript
transfer pricing

Transfer Pricing

Advance Pricing Agreements

Bob Ackerman

John Michaelson

transfer pricing disputes
Transfer Pricing Disputes
  • Factually intensive
  • Frequently contentious and controversial
  • Time consuming
  • Adversarial
  • Arbitrary resolutions
  • Expensive from both taxpayer’s and taxing authority’s perspective
overview of apas
Overview of APAs
  • What is an APA?
  • Advantages/Disadvantages of an APA?
  • How does the APA process work?
what is an apa
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.
what is an apa cont
What is an APA (cont.)

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 cont7
What is an APA (cont.)

3. To come to an agreement in an expedited fashion

4. To come to an agreement in a cost effective fashion

apas potential advantages
APAs: Potential Advantages
  • Avoids protracted disputes
  • Educates taxing authorities
  • Offers flexibility
  • Is an efficient use of resources (application to back years)
  • Provides certainty
  • Eliminates the risk of double taxation
apas potential disadvantages
APAs: Potential Disadvantages
  • Locked into TPM
  • Disclosure to government of sensitive data
  • Raises other issues
how does the apa process work
How does the APA Process Work
  • Prefiling conference
  • APA proposal
  • Evaluation and negotiation process
  • The agreement
  • Administration
  • Renewal
apa prefiling conference
APA Prefiling Conference
  • Scope of agreement
  • TPM
  • Duration of agreement
  • Rough format
  • “Soft” data
  • Prior year exam status
apa proposal
APA Proposal
  • General facts
  • TPM
  • Specific facts and circumstances relevant to TPM
  • Legal discussions
  • Critical assumptions
  • Annual report information
  • Term of agreement
negotiations
Negotiations
  • On-site visits
  • Additional data requests
  • Conferences
    • Clarification of facts
    • Negotiation of settlement
    • Contract drafting
the agreement
The Agreement
  • Parties
  • Covered transactions
  • TPM
  • Term
  • APA records
  • Critical assumptions
  • Compensating adjustments
  • Annual report
administration
Administration
  • Annual reports
    • Good faith compliance
  • Future examinations
    • Accurate, valid facts
    • Correct computations
    • Consistent application
renewal
Renewal
  • Same facts
    • Expedited
    • Abbreviated APA proposal
  • Different facts - just depends
future state participation in apas
Future State Participation in APAs
  • Joint Federal/State APA Program
  • Simultaneous resolution of Federal and State transfer pricing issues
future state participation in apas state benefits
Future State Participation in APAs: State Benefits
  • Training on how to conduct Advance Pricing Agreement negotiations
  • Knowledge of How to Conduct an APA Investigation
  • Intimate Knowlege of Select Industries
  • Detailed Knowledge of Particular Taxpayers

18

future state participation in apas taxpayer benefits
Future State Participation in APAs: Taxpayer Benefits
  • Cost Effective Way of Resolving Transfer Pricing Issues
  • Certainty of Tax Treatment
  • Simultaneous Resolution of Similar Federal and State Issues

19

future state participation in apas federal benefits
Future State Participation in APAs: Federal Benefits
  • Increased Awareness of Federal APA Program.
  • Increased Cooperation with State taxing Authorities.

20

future state participation in apas state concerns
Future State Participation in APAs: State Concerns
  • Increased Manpower and Infrastructure Support
  • Privacy Concerns
  • Federal Influence over State Taxing Decisions
  • State involvement with Federal Negotiations

21

conclusion
Conclusion
  • Flexible & common sense approach
  • Consensus seeking
  • Effective problem solving tool
    • Avoids audits
    • Provides certainty
    • Reduces taxpayer burden
    • Cost-effective