IRS proposes changes to Competent Authority and APA procedures: comments requested by 3/20/2014

by DLA Piper

The IRS has published for comment two draft revenue procedures that change the existing process for US taxpayers requesting Competent Authority relief under the Mutual Agreement Procedures  (MAP) and other provisions of US income tax treaties (or similar agreements)  and that would change the procedures applicable to Advance Pricing Agreements (APAs).

Notice 2013-78 proposes changes that would replace Rev. Proc. 2006-54 (MAP). Notice 2013-79 proposes changes that would replace Rev. Procs. 2006-9 and 2008-31(APAs).

The proposed revisions to the MAP procedures are generally a greater departure from current procedures than are the proposed changes to current APA procedures.

IRS has requested taxpayer comments on the proposed changes by March 20, 2014.


The proposed revisions to the existing MAP and APA procedures intend, in part, to reflect the reorganization of the IRS MAP and APA programs into the Advance Pricing Mutual Agreement (APMA)  Program, together with other IRS reorganizations that have resulted in a comprehensive, nationally coordinated IRS transfer pricing enforcement program.

Other proposed procedural changes reflect the nature of the US MAP case load, which is more heavily weighted towards foreign initiated adjustment cases than was the situation in 2006, a renewed emphasis upon bilateral APAs and a desire to resolve recurring transfer pricing issues in one comprehensive suite of procedures comprised of MAP procedures (e.g., Accelerated Competent Authority, simultaneous appeals), APA procedures (e.g., APAs plus rollbacks) or both (e.g., MAP, Accelerated Competent Authority plus a prospective APA).

The revised procedures reflect a revised APMA mission for both MAP and APA cases to “administer programs and resolve issues in a manner that secures appropriate tax bases of U.S. and treaty partners, prevents fiscal evasion, and is otherwise consistent with sound tax administration.”

Conspicuously absent from the revised mission statement is any reference to eliminating economic double taxation or to the application of the arm’s length standard to resolve transfer pricing cases.


The revised procedures contemplate much earlier involvement of the APMA Program  in US-initiated transfer pricing adjustment cases. Moreover, compared to current procedures, there are limited avenues for US taxpayers to challenge IRS initiated transfer pricing adjustments that may result in double economic taxation.

As has been the case under earlier procedures, taxpayers can file for MAP relief immediately after a Form 5701 (Notice of Proposed Adjustment) has been issued. However, if the taxpayer intends to seek MAP relief from a settlement reached with exam, the APMA Program must be brought into the settlement discussions.

Unlike the case under current procedures, taxpayers that want IRS appeals review of an IRS adjustment must either file for Simultaneous Appeals Competent Authority relief (SAP) when a protest is filed or ask for SAP within 30 days after the opening appeals conference. If the proposed revisions are adopted, then SAP will be the  only way to have both appeals review of an IRS proposed transfer pricing adjustment  and possible CA relief. In addition, the proposed revisions state that APMA may seek Appeals’ involvement, even if no protest has been filed to challenge the original proposed adjustment.

The proposed procedures provide that IRS can initiate or mandate extension of a MAP (or APA) case to other (earlier or later) tax years, other tax issues or other countries. The IRS request for extension of MAP or an APA will presumably be enforced by denying MAP relief or rejecting a request for an APA. Additional reasons for rejecting MAP assistance include the fact that an issue is pending in a foreign court, taxpayer refusal (or inability) to extend the MAP proceeding to additional foreign CAs or a failure to disclose pertinent issues involving affiliates in non-treaty jurisdiction.

The proposed procedures specifically authorize joint presentations by a taxpayer to the IRS APMA staff and to a foreign Competent Authority. The request for a joint presentation can be made by the taxpayer or may be initiated by IRS.

The proposed procedures provide that MAP  assistance will be available for taxpayer-initiated adjustments that either decrease or increase US tax liability. However, MAP relief for taxpayer initiated adjustments is inapplicable if the “request evinces after-the-fact tax planning or fiscal evasion.”

Finally, APMA will give “informal consultation” on the creditability of foreign taxes arising from foreign initiated adjustments. Presumably, taxpayers who receive informal advice that foreign taxes are creditable will not be required to seek MAP relief in order to show that the foreign tax does not result in a (non-creditable) voluntary payment.


 According to Notice 2013-79, there are a  “limited number of significant substantive changes” that are proposed to current APA procedures.

One change is the proposal for mandatory pre-filing submissions and pre-filing conferences for certain APA cases, which include cases where a covered transaction relates to the consideration for the transfer of IP in a cost sharing arrangement.

Cases involving fiscally transparent entities (check-the-box entities) also require mandatory pre-filing conferences. Other mandatory pre-filing cases include APA renewals where simplified renewal procedures are proposed.

As is the case under current procedures, any advice given by the IRS during a pre-filing conference is considered informal (that is, not binding on the IRS).

The requirements for the contents of APA submissions have been standardized. The procedure sets forth a list of documents or information that must be included (in order) with an APA submission and indexed. The required information includes:

  • “Covered issue diagrams,” including identification of the “principal” in transactions that do not involve a profit split method
  • Corporate organization charts
  • A request for rollback of the APA (if applicable)
  • Relevant transfer pricing documentation studies
  • CPM analyses in the format published by APMA
  • Current or expired foreign tax rulings or APAs
  • A protective claim for refund if a refund may be possible
  • A waiver of ex parte communications if any APA or rollback years are pending before Appeals
  • Copies of all documents submitted to a foreign Competent Authority that relate to the APA request
  • A proposed draft final APA document in the format published on the IRS website

The revised procedures anticipate that there will be increased transparency among the Competent Authorities during both APA and MAP processes. There is a requirement that taxpayers share with IRS submissions and analysis provided to foreign a Competent Authority whether requested by the Competent Authority or provided voluntarily by the taxpayer. However, there is no indication of increased transparency to taxpayer.

Finally, an APA Request will be considered a “factor” in determining whether §6662(e) contemporaneous documentation requirements are satisfied.


The proposed procedures reflect some fairly substantial changes to current IRS MAP and APA procedures. Taxpayer affected by these proposed changes should submit comments to IRS by March 20, 2014.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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