Deconstructing MAP and APA
Increased demand, new requirements to engage with IRS Examination, and efforts to come to terms with untested provisions of the TCJA have stretched APMA resources

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In recent years, many taxpayers have effectively used mutual agreement procedure (MAP) cases and advance pricing agreements (APAs) to reduce or eliminate actual or potential double taxation due to inconsistent treatment of transactions with cross-border impact—most conspicuously for transfer pricing matters, but potentially for other issues as well. As the global tax environment has become more complex, with tax authorities now applying OECD Base Erosion and Profit Shifting (BEPS) Actions 8–10 and other new anti-avoidance measures, taxpayers have filed record numbers of MAP cases and APA requests. Combined with the emergence of new requirements to engage with the Internal Revenue Service examination process, this increased demand for closing MAP cases quickly and (in many cases) for coming to terms with untested provisions of the recent Tax Cuts and Jobs Act of 2017 (TCJA) has stretched the finite resources of the U.S. Advance Pricing Mutual Agreement Program (the APMA program, or simply APMA). And yet, this trend is unlikely to slow, as global trends in tax administration will continue to increase the relevance and importance of MAPs and APAs to taxpayers. In this resource-constrained environment, taxpayers will be well advised to consider in advance how to effectively develop and present their MAP cases and APA requests in an efficient, principled manner. Below is a brief overview of the MAP and APA procedures and challenges in the current global tax environment, followed by practical suggestions for taxpayers seeking MAP relief and APAs. At the end is a preview of potential new issues on the horizon.

Main Objectives of MAP Cases and APAs

MAP cases and APAs1 share the same objective—to eliminate economic double taxation.2 However, the time frames of the procedures differ, in that MAPs may be used to reduce actual double taxation post assessment whereas APAs eliminate possible future double taxation through a forward-looking agreement on the arm’s-length result of transactions. Nevertheless, as a practical matter, the two procedures necessarily overlap somewhat under the U.S. Accelerated Competent Authority Procedure (ACAP) rules, which allow a MAP case to resolve filed years subsequent to the year(s) subject to the initial transfer pricing adjustment. Similarly, in the United States and many treaty partner jurisdictions, APA rollback mechanisms may grant retroactive coverage, allowing an APA to include prior filed years. Because the rules of specific jurisdictions differ, it is a best practice to coordinate closely with foreign advisors to ensure that the desired coverage is available as a procedural matter.

Below is a brief review of the considerations relevant to both the MAP and APA processes.

MAP: Reduce or Eliminate Double Taxation

Notwithstanding cases where a taxpayer seeks ACAP relief for unaudited years subsequent to the year(s) of adjustment, most MAP cases attempt to reduce or eliminate double taxation in cases where adjustments have already been made.3 Most U.S. income tax treaties merely require the treaty partners, after having accepted a MAP case, to endeavor to eliminate taxation not in accordance with the treaty (see OECD Model Tax Convention on Income and Capital (2007). In other words, absent a mandatory arbitration provision, there is no binding requirement that the treaty partners eliminate double taxation or even conclude consultations within a specific time frame. Nevertheless, as reviewed below, the results of the OECD BEPS Action Plan have increased the pressure on the IRS and other tax authorities to complete MAP cases more expeditiously.

The United States and most of its treaty partners have an excellent track record of eliminating double taxation, although time-to-completion has historically been an issue. Aggregate statistics released by APMA indicate that, even excluding the results under tax treaties that provide for binding arbitration, the United States and its treaty partners have reached agreement for full relief from double taxation in the vast majority of cases and partial relief in the minority of cases; rarely are they unable to reach agreement at all.4 Unagreed cases may result, for example, if one treaty partner adopts a different view of the material facts or, less frequently, if one treaty partner identifies a procedural issue that, in its view, bars relief. Such deadlock cases, however, are very much the exception, not the rule.

MAP Cases Not All Alike

Different considerations can apply to MAP cases originating from U.S. adjustments, from non-U.S. adjustments, and from taxpayer-initiated adjustments.

Much of the complexity in the MAP space results from the fact that a transfer pricing adjustment can originate from several different sources—IRS Examination, a foreign tax authority, or even the taxpayer itself5 (in the case of a taxpayer-initiated adjustment)6—and from the IRS’ perspective, each type of adjustment implicates different rules and procedures, although the details of these rules are beyond the scope of this article.

To provide one example, in the case of foreign-initiated adjustments, the MAP revenue procedure (Rev. Proc. 2015-40) expresses the concern that the taxpayer should not “acquiesce” in the adjustment or otherwise compromise its rights to contest the adjustment in the foreign jurisdiction. In a similar vein, U.S. foreign tax credit rules require a taxpayer to undertake reasonable challenges to income adjustments in the foreign jurisdiction, and the taxpayer may also be required seek MAP relief as well.7 Taxpayers should keep in mind that distinct and partially overlapping requirements apply under two separate sets of rules (MAP and foreign tax credit).

Taxpayers should understand how the MAP rules and requirements differ depending on the origin of the specific transfer pricing adjustment and should proceed with caution to ensure that they meet each of these requirements.

APMA’s Unilateral Review Before Referral to Bilateral Negotiations

The OECD Model Tax Convention and the OECD Transfer Pricing Guidelines provide the basic framework for countries to evaluate transfer pricing adjustments.8 Article 25(2) (MAP) of the OECD Model Tax Convention (and most actual bilateral treaties between OECD members) contemplates that a treaty jurisdiction will commence bilateral MAP negotiations only to the extent that “it is not itself able to arrive at a satisfactory solution.” In other words, a competent authority presented with a MAP request should first consider whether the adjustment is consistent with the arm’s-length principle under the OECD Transfer Pricing Guidelines. If, after doing so, the competent authority concludes that a domestic-initiated adjustment is not supported, or that a foreign-initiated adjustment is supported, the competent authority can and should grant double tax relief unilaterally, without engaging in further negotiations.9

Consistent with this provision in the OECD Model Tax Convention, Rev. Proc. 2015-40 authorizes APMA to grant unilateral double tax relief in appropriate cases involving either IRS- or foreign-initiated adjustments.10 Indeed, APMA’s practice in recent years has been to conduct a preliminary review of IRS-initiated adjustments to first verify if the specific adjustment is one that should be formally presented to the treaty partner.11 This review may lead the APMA program to withdraw the IRS’ transfer pricing adjustment in full. Further, published statistics indicate that APMA now grants double tax relief on a unilateral basis in a significant number of cases (i.e., in ninety-four out of 293 total MAP cases resolved in 2017).12

What is more, new LB&I guidance now requires IRS Examination to consult with the APMA program early in the examination process in any case involving a treaty partner and, in any event, before proposing a transfer pricing adjustment.13 This new guidance is apparently intended to ensure that APMA’s expertise and experience with treaty partners are fully taken into account by examination teams and to prevent adjustments that cannot be supported in MAP negotiations (i.e., those that APMA would unilaterally withdraw) from ever being proposed.

Collectively, these practices of APMA unilateral review of proposed adjustments in MAP, and even earlier internal APMA review of mere potential adjustments under the new LB&I guidance, ensure that the resources of the APMA program are devoted to cases that have a reasonable likelihood of being sustained in the MAP process. Taxpayers and practitioners should be aware of and take into account this additional level of internal review.

APA: Achieve Up-front Certainty to Prevent Double Taxation

As discussed, APA cases are qualitatively different from MAP cases, because they result from an affirmative decision on the part of the taxpayer to engage with the tax authorities in advance to obtain prospective certainty concerning transfer pricing results.

The factors that motivate taxpayers to seek APAs are as varied as the individual taxpayers that request them. As indicated in the most recent APMA program annual report,14 a substantial portion of APA cases deal with relatively routine issues, such as the arm’s-length return to distribution activities or the appropriate allocation of headquarters expenses. At the other end of the spectrum, some cases deal with unusual industries, new types of controlled transactions, or novel transfer pricing issues. An even smaller subgroup of cases involves issues such as business restructurings or spin-off transactions, where obtaining up-front certainty regarding the arm’s-length result (and harmonizing views among multiple tax jurisdictions) is at a premium. Still other cases fail to fit into any of these categories.

It is also worthwhile to remember that APMA’s review authority is not limited to the transactions that are covered by the APA application. APMA has authority to analyze any additional interrelated transactions it considers potentially relevant to the covered transactions.

For an APA to proceed, it takes two to tango—in other words, the availability of an APA should not be taken for granted. For example, APMA cannot compel a treaty partner to accept an APA request if the foreign competent authority concludes that the request poses an opportunity for tax avoidance or is otherwise not in accordance with the best interests of tax administration. In recent years, some foreign competent authorities have rejected APA requests (or postponed consideration of the requests) on the grounds that the proposed transfer pricing outcome is at odds with one or more domestic measures, such as the diverted profits tax (DPT) in the United Kingdom or the multinational anti-avoidance law (MAAL) in Australia.

Pros and Cons of Pursuing MAPs and APAs

At its core, the decision to file for MAP or to request an APA generally reduces to a cost-benefit analysis.

In most MAP cases, that cost-benefit analysis is relatively straightforward: the cost of pursuing a MAP case can be justified if it is less than the cost of bearing double taxation that would otherwise result from the actual adjustment if a MAP request were not filed. On average, the resources needed to respond to due diligence questions and to meet the other requirements associated with pursuing a MAP request tend to be lower than those for an APA proceeding that deals with controlled transactions of similar scope and complexity. In part, this results from the fact that a MAP case deals with a transfer pricing adjustment that has already been made, meaning that the nature and amount of the adjustment are known. Also, no IRS user fee applies to MAP requests, whereas a substantial (and recently increased) user fee must be paid before filing an APA request.

In deciding whether to request an APA, taxpayers likewise must undertake a cost-benefit analysis and weigh the projected time and expense associated with preparing the initial APA request and responding to the competent authorities’ information requests against the increased certainty an APA can provide. This calculus should consider not only outside advisor fees but also the potentially substantial time and resource demands that may be placed on in-house professionals and executives, respectively, to respond to due diligence inquiries and to participate in functional interviews. Taxpayers should also consider whether their businesses and related-party transactions are expected to remain materially the same for the duration of an APA term of at least five years, since a material change in facts and circumstances could be treated as a breach of a critical assumption underlying the APA, requiring the APA to be renegotiated.

Another consideration in the APA context relevant to some taxpayers relates to confidentiality. Here, taxpayers can rest assured that APA procedures in the United States are governed by tax treaty provisions and Internal Revenue Code Section 6103, which ensure confidentiality of taxpayer information, meaning that the identity of the taxpayer and the nature of the transfer pricing outcome requested are protected from public disclosure, except in aggregate and anonymous form in the APA annual reports issued under the Code.15 These same strict prohibitions against disclosure also apply if the APA application proves to be unsuccessful or is withdrawn in whole or in part.

Challenges in the Current Environment—Doing More With Less

Perhaps more than ever before, the APMA program is being asked to do more with less, as BEPS Actions 8–10 and other anti-avoidance measures worldwide have yielded record-high inventories of MAPs and demand for APAs at the same time that IRS budget and staff resources have become more limited.

Doing More With Less in MAPs

APMA’s resources have been stretched thin by a heavy inventory of transfer-pricing MAP cases (676 in inventory as of December 31, 2017),16 which likewise is expected to remain high as a result of BEPS Actions 8–10 and other anti-avoidance measures around the world that recently have prompted record numbers of APA requests, as discussed below.

For MAP cases in its inventory, APMA is under increased pressure to meet its commitment under BEPS Action 14 to resolve cases within an average two-year time frame. And for MAP cases involving Canada, Germany, Belgium, and France—and soon also Japan, Spain, and Switzerland—the two-year deadline is not merely aspirational but required; after two years’ lapse, the case is generally referred for resolution by mandatory arbitration under the MAP article of the United States’ double tax treaties with these countries.

Doing More With Less in APAs

Just as on the MAP front, APMA’s resources are strained by record demand for APAs. In 2018, APMA received 203 APA requests,17 an all-time record. Further, it appears that the APA cases in that large inventory are becoming more complex. Although, as noted, a substantial portion of this inventory continues to consist of “simple” cases involving routine two-party transactions (e.g., distribution or services), many involve high-dollar values or uncertain factual issues that potentially make them more difficult to negotiate. Moreover, as modern value chains become more intricate and integrated, substantively complex APAs, including multilateral APAs and APAs with multiple covered issues and complicated methodologies, will likely become more commonplace.18

What is more, armed with a widely uninterpreted new set of tools in the BEPS Action 8–10 changes to the OECD Transfer Pricing Guidelines—e.g., guidance in connection with the development, enhancement, maintenance, protection, and exploitation (DEMPE) of intangible property—tax authorities worldwide are now more closely scrutinizing the adequacy of previously well-accepted one-sided methods19 and considering profit splits in more cases. Consistent with this trend, the APMA program recently released a new functional cost diagnostic (FCD) model, a pro forma cost-based profit-split model that APMA now requires taxpayers to complete in certain cases (i.e., where the APA-covered transactions involve significant marketing contributions or expenditures). Although APMA has made clear that the FCD is a diagnostic tool and that the profit-split method will not be applied in every case in which the FCD model is considered, APMA’s development of the model may reflect the trend away from exclusive reliance on the simple benchmarking that has been the mainstay of transfer pricing—and APA negotiations—for decades. Thus, APMA, like counterpart tax authorities around the world, is now applying more sophisticated and resource-intensive analyses in more cases.

Finally, as discussed in more detail below, APMA now also has the additional task of considering the impact of the TCJA and newly imposed customs duties (tariffs) on both existing and new APAs.

How to Survive—and Thrive—in the New Environment

How are taxpayers managing, given that the APMA program’s finite resources are stretched thin among a record number of APA and MAP submissions and more complex DEMPE-driven cases, in an environment made more challenging with heightened pressure to close MAPs quickly and added requirements to engage with the examination process and to adjust to the brave new world of the TCJA?

While the current environment is challenging, taxpayers can continue to use the MAP and bilateral and multilateral APA process to resolve even the most challenging transfer pricing disputes in an efficient, principled manner. Below are some practical suggestions for doing so.

Follow Time-Tested Best Practices

No doubt, both the MAP and the APA processes can take a long time, as evidenced by average completion times that (at least for APAs) are up and unlikely to be significantly reduced in the near term.20 Nevertheless, in many cases, it is possible to reduce completion times and avoid delays by following certain basic time-tested best practices to make APMA’s job easier.

In this regard, it goes without saying that taxpayers should file complete submissions containing all information required by Rev. Proc. 2015-40 (for MAPs) and Rev. Proc. 2015-41 (for APAs), to the extent that the requirements are applicable in the particular case. Failure to provide information that is explicitly required or making APMA or the foreign competent authority request additional information more than once will often result in delays and, potentially, mistrust.

Further, in our experience, the most effective submissions are complete not only in letter (i.e., they fulfill the requirements of the revenue procedure) but also in spirit. It is usually better to proactively identify and address foreseeable factual, legal, and economic issues up front rather than risk the delays and reputational harm that could result if the issue is discovered by APMA or the foreign competent authority later in the process. This is particularly true of APA requests, given the voluntary, cooperative nature of the program and higher standards of transparency to which taxpayers are held.

To help expedite APMA’s review, taxpayers should also ensure that submissions are well organized and easy for APMA to work with. For example, simple things like providing spreadsheets with all formulas intact, detailed tables of contents, tables of acronyms, robust covered issue diagrams, tables to summarize key financial data, and hyperlinks in the submission text to referenced exhibits all will facilitate and expedite APMA’s review.

Moreover, taxpayers should be mindful of the obligation to provide APMA with all information provided to a foreign competent authority, and vice versa, in both APA and MAP negotiations. Taxpayers may also consider ways to actively engage with both competent authorities in a fair, evenhanded manner. For instance, when a MAP or an APA case is scheduled to be on an agenda for a competent authority meeting, it would often be advisable to proactively offer to meet with the foreign competent authority (and APMA, if such a meeting has not already occurred) to make sure that both competent authorities are as prepared as possible to engage in substantive negotiations. Such cooperative, active engagement can reduce the number of competent authority meetings, and thus the total time, required to reach resolution.

Demonstrate Why a Particular Case Is “Easy” and Should Be Disposed of Quickly

Taxpayers and APMA have a mutual interest in expeditiously resolving straightforward cases—for example, a simple distribution case involving a minor adjustment to an outbound distributor’s margin. This is particularly true for MAP cases, where expeditious resolution of “easy” cases is essential to helping APMA meet its BEPS Action 14 mandate to resolve transfer pricing MAPs in an average of two years or less.

APMA’s 2017 MAP statistics report indicates promising statistics for APMA’s inclination to more expediently resolve new cases involving straightforward issues.21 In 2017, APMA reported a remarkable start-to-end average completion time of only 5.03 months for the subset of eighty-three MAP cases received after January 1, 2016, and concluded during the 2017 taxable year.22 Although these statistics do not include cases received prior to January 1, 2016, or those still in APMA’s inventory on December 31, 2017, the sample size of the subset—eighty-three—is significant enough to show that APMA is expediently processing and closing a substantial number of MAP cases, indicating a healthy trend toward efficient resolution of straightforward cases that taxpayers might capitalize on in the future if they are able to successfully demonstrate that their cases rightly fall into that category.

However, given APMA’s heavy caseload consisting of cases that may look similar on their surface, APMA may not always readily identify which cases are straightforward and potentially expedient to resolve. In this regard, taxpayers would be well served to clearly explain and advocate to APMA why the case is simple, for example, by scheduling an optional prefiling conference with APMA and filing a straightforward but well-written submission to explain the basis for the U.S.- or foreign-initiated adjustment and the taxpayer’s position as to the appropriate relief (e.g., withdrawal or correlative relief).

Leverage Procedures to Resolve the Maximum Number of Years

Finally, we would note that in both the MAP and the APA processes it is often possible to resolve recurring tax issues in far more tax years through a single process than through domestic remedies (e.g., IRS Appeals or litigation). As discussed at the outset of this article, IRS procedures (Rev. Procs. 2015-40 and 2015-41) provide taxpayers with different options to bring together as many years as possible and break the vicious cycle of recurring issues in later years, which is a win for taxpayers and tax authorities alike. These options include the possibility to roll forward a MAP resolution to later filed tax years through ACAP or through an APA, which can generally be completed through a quicker process and a simpler submission once a MAP has been concluded than through a normal APA request. The same result can be reached where tax treaties include an APA rollback provision that allows retroactive application of an APA to other open years (including years under examination) regardless of whether those earlier years are subject to a MAP.23

Anecdotally, it is possible and indeed not out of the ordinary to leverage ACAP and APA rollback procedures to resolve transfer pricing issues in a total of ten to fifteen completed and/or prospective years. While procedures to include a large number of years are not new, Rev. Procs. 2015-40 and 2015-41 provide clearer guidance and encourage these options to be availed of more than prior guidance did. Indeed, leveraging these procedures to the fullest potential is in the mutual interest of taxpayers and the APMA program, since resolving as many years as possible at once helps a resource-strapped program make the most effective use of its resources.

Issues and Areas for Potential Future Work

The discussion in the foregoing sections indicates that the APMA program plays an important role in ensuring that the transfer pricing rules operate as intended and impose the least possible constraint on commerce and business transactions. In addition to its traditional work in this area, APMA is being called on to play several new roles, as outlined below.

Interaction of APA/MAP With TCJA

Historically, the APMA program considered its jurisdiction limited to traditional transfer pricing matters and other issues that used transfer pricing principles (such as attribution of profits to permanent establishments under certain tax treaties, split-sourcing under Section 863(b), etc.).24 Several provisions in the TCJA directly or indirectly implicate transfer pricing rules, and moreover the results under these provisions often depend upon the character of the payments at issue, which, historically, was an issue APMA was not willing to address.25 Under the circumstances, it is unclear whether or how the APMA program intends to address these issues. These provisions are as follows.

Services Cost Method (SCM) Exception to the Base Erosion Anti-Abuse Tax (BEAT)

One issue that potentially falls within the scope of APMA’s jurisdiction involves the services cost method (SCM) exception to the base erosion anti-abuse tax (BEAT). The SCM exception excludes from the BEAT the cost of certain intercompany services that qualify for the SCM under Treasury Regulations Section 1.482-9(b), without regard to the so-called business judgment test under that regulation. As now confirmed by proposed regulations, if services otherwise eligible for the SCM exception are charged at cost plus a markup, the cost portion of the charge (but not the markup) can still be excluded from the BEAT.26

Taxpayers subject to the BEAT have raised technical issues with respect to application of the SCM exception in Section 59A(d)(5). It seems that taxpayers should be able to request guidance on these issues from APMA in the context of an APA request that addresses a similar group of intercompany services.

Interaction of APA-Approved Transfer Pricing Methods With TCJA

Enactment of the TCJA has also raised questions concerning the substantive interaction between transfer pricing analysis under Section 482 or relevant provisions of the OECD Transfer Pricing Guidelines and the provisions of the TCJA. For example, no guidance indicates how a compensating adjustment to a foreign related party for the sole purpose of implementing or giving effect to a residual profit-split method result required by an APA would be classified for purposes of the BEAT, assuming that the U.S. party is above the revenue and other applicable thresholds for the BEAT to apply. Although it seems that a cash or noncash adjustment solely to achieve a particular transfer pricing outcome (including but not limited to an outcome required under an APA) should not be considered a “base erosion” payment subject to the BEAT in any event, the plain language of Section 59A does not directly address this issue or provide an explicit exception for such payments. Clearly, this is the type of issue on which guidance from APMA is appropriate—at a minimum, with respect to APAs that may give rise to outbound payments of this nature.

Impact of Customs Tariffs and Other Trade-Related Measures

The United States recently imposed customs duties (tariffs) on imports from various nations, including tariffs on aluminum and steel products from many nations and tariffs on a broad range of merchandise imports from China. Such tariffs, as well as various retaliatory measures that other countries may impose on U.S. exports, present challenging analytical issues from a transfer pricing perspective.

For example, how (if at all) should such tariffs be taken into account when evaluating the arm’s-length operating profits for specific U.S. importers or exporters? If related-party imports subject to tariffs are part of a larger supply-chain structure, which controlled party should bear the economic cost of the tariffs (or should such costs be shared on some basis)? Are the recently enacted tariffs or similar measures likely to be a permanent fixture of the U.S. economic landscape, or are they better viewed as extraordinary measures that will have limited duration? Specifically in the APA context, how (if at all) do the new tariffs affect operating profit targets that the parties adopted before tariffs of this magnitude were imposed (or even contemplated)? Could the tariffs be such a fundamental change in operating conditions that they trigger a critical assumption, thereby requiring renegotiation of the APA?

In several recent cases, the APMA program requested specific taxpayers’ input on factual questions related to the new tariffs, which to some extent reflect the points raised in the previous paragraph. It is reasonable to assume that the APMA program will apply the same approach here as it applied to other issues that potentially affect the transfer pricing practices of a large number of taxpayers or a large number of APAs, i.e., it will collect information to identify the most prevalent fact patterns and will identify a set of governing principles that apply to the most cases.

Benchmarking for Routine Services and Other Lower-Stakes Transactions

As noted above, the recent APA annual reports indicate that a substantial portion of the program’s workload consists of controlled transactions in the nature of distribution or other relatively low-value (but potentially high-volume) activities. On several occasions, staff of the APMA program informally supported the development and use of standardized “reference sets” of uncontrolled comparables for specific categories of controlled transactions and specific geographic markets or regions. Although use of such reference sets would constitute a departure from traditional practice in the APMA program, whereby the APMA team leader and the APMA economist generally perform a factual and functional analysis of each case and seek to develop a reliable set of uncontrolled comparables on a case-by-case basis, the direction of travel on this issue seems to be clear. Further leveraging reference sets and frameworks to address similar, relatively routine cases in a standardized manner (while still allowing modifications and custom approaches where facts and circumstances warrant) would seem to be another area in which the APMA program could gain efficiency.


The APMA program, by facilitating both prospective and retrospective agreements concerning application of the arm’s-length principle, is an important feature of the tax compliance landscape for many multinationals. That role will likely become even more important, because many anticipate transfer pricing cases to become more prevalent and more technically complex. Complicating matters somewhat, the APMA program has recently taken on new responsibilities, such as screening IRS-initiated adjustments that affect treaty jurisdictions and potentially dealing with transfer-pricing-related issues that arise under the TCJA and other provisions of domestic law (including nontax law). To increase the chances of a satisfactory outcome, taxpayers requesting assistance from the APMA program and from its counterparts in treaty jurisdictions should pay close attention to procedural and substantive requirements for relief and should in other respects follow the rules of the road applicable to APAs and MAP cases. MAP and bilateral and multilateral APA cases depend on the IRS and the applicable treaty partner reaching a sound, technical consensus concerning application of the arm’s-length principle in a specific fact pattern. Given that transfer pricing issues are likely to become increasingly complex, APA and MAP cases will remain critical features of the multinational entity’s compliance toolkit.

John Breen is tax managing director, Deloitte Tax LLP, in Washington, D.C.; Sonja Schiller is tax counsel at Microsoft Corporation; and Jason Osborn is a partner at Mayer Brown LLP in Washington, D.C.


  1. For reference, the relevant Revenue Procedures are Rev. Proc. 2015-40 (MAP) and Rev. Proc. 2015-41 (APMA). Both documents contain extensive guidance concerning the drafting of requests and the conduct of proceedings.
  2. Economic double taxation results when two or more parties are subject to tax in two or more jurisdictions on the same item of income. This is likely to occur when one jurisdiction makes a transfer pricing adjustment or similar adjustment to income or deductions, unless i) the other jurisdiction is willing to grant a correlative adjustment or ii) both countries can reach agreement regarding an alternative transfer pricing outcome to which each country will give effect under its own domestic procedures. The resolution may in some cases require the initiating country to withdraw its adjustment entirely. The same result can obtain if the IRS applies Section 61 or Section 162, or if a foreign revenue authority applies similar principles of domestic law.
  3. This assumes that all applicable procedural requirements for relief under MAP, e.g., notification within applicable time limits, have been met.
  4. The most recent IRS release of MAP statistics (for 2017) is available at MAP statistics for 2015 and earlier years are available at
  5. Historically, it was unclear whether MAP relief was available for taxpayer-initiated adjustments. The MAP Revenue Procedure (Rev. Proc. 2015-40) resolved this uncertainty by treating taxpayer-initiated adjustments in essentially the same way as “traditional” adjustments initiated by a revenue authority. Such adjustments on the part of taxpayers do, however, trigger additional requirements in the United States, including a mandatory prefiling conference with the APMA program. These and other rules suggest that, notwithstanding that taxpayers frequently make annual true-up adjustments under various transfer pricing methods, such adjustments are subject to incremental scrutiny in the MAP process, as compared to traditional adjustments that originate from a revenue authority.
  6. Under the Section 482 regulations, a U.S. taxpayer may report the results of controlled transactions “based on prices different from those actually charged,” if necessary to reflect an arm’s-length result. See Treas. Reg. Section 1.482-1(a)(3). An adjustment that has the effect of reducing U.S. taxable income can be made only on a filed-on-time income tax return (including extensions). Id.
  7. The foreign tax credit regulations, Treas. Reg. Section 1.901-2(e)(5), require taxpayers to exhaust all “effective and practical” remedies, including “invocation of competent authority procedures under an applicable tax treaty.”
  8. See OECD Model Tax Convention, Articles 9(2) and 25(2), and OECD Transfer Pricing Guidelines, paragraph 4.29 et seq. (July 2017 edition).
  9. Indeed, in the case of a justified foreign-initiated adjustment, Article 9(2) of the OECD Model Tax Convention explicitly requires that the treaty partner grant correlative relief, assuming that the requirements for relief under the Convention (e.g., timely notification) have been satisfied.
  10. See Rev. Proc. 2015-40, Sections 8.01 and 8.02.
  11. Overall, this practice aligns with other measures adopted after the merger of the APA program with the LB&I Division in late 2013. Before 2013, the advance pricing agreement program was part of the Office of Associate Chief Counsel (International) within the IRS Office of Chief Counsel.
  12. OECD, United States – 2017 MAP Statistics, available at No breakout is provided between U.S.- and foreign-initiated cases resolved unilaterally.
  13. See IRS Publication 5300 (Transfer Pricing Examination Process, May 29, 2019), available at, and Interim Guidance on Mandatory Issue Team Consultations with APMA for Examination of Transfer Pricing Issues Involving Treaty Countries, available at
  14. See Announcement and Report Concerning Advance Pricing Agreements, March 22, 2019,
  15. This article deals with disclosure under domestic U.S. law and potential U.S. disclosure to the relevant treaty partner that is the subject of a specific bilateral APA request. Under BEPS Action Item 5, a country’s revenue authority may be required to disclose the existence of unilateral APAs to third-country treaty partners, but such provisions are beyond the scope of this article.
  16. The most recent United States MAP statistics are available at
  17. See again Announcement and Report Concerning Advance Pricing Agreements, While this unprecedented number of requests is likely skewed by taxpayers that accelerated their filings in advance of the tiered user fee increases that took effect on July 1, 2018, and January 1, 2019, it also shows that taxpayer demand for the certainty of APAs remains strong post-BEPS and post-TCJA.
  18. Indeed, as possible early evidence of this trend, APMA received a record-high seven multilateral APA requests in 2018, as compared with only eleven such requests throughout the history of the program through 2017.
  19. Examples include the comparable profits method (CPM) and the transactional net margin method (TNMM).
  20. For this reason, managing expectations on the part of corporate tax departments and obtaining senior management’s buy-in concerning a long-game strategy are important.
  21. Conversely, the 2017 report shows that APMA has many aging transfer-pricing MAP cases in its inventory (429 of its 676 total transfer pricing cases were commenced before January 1, 2016) and that these older pre-2016 cases have taken an average of about three years to conclude.
  22. The 2017 report also noted that a substantial number of the MAP cases closed in 2017—ninety-four of 293—were resolved by the United States granting relief unilaterally (i.e., withdrawal in the case of an IRS Examination-initiated adjustment, correlative relief in the case of a foreign-initiated adjustment).
  23. APMA is generally amenable to, and in fact encourages, extending the APA term to include at least three—or more—prospective tax years as of the date of agreement concerning the APA. Thus, the long completion for APAs often has a silver lining of a correspondingly longer APA term.
  24. At the same time, the APMA program in some cases facilitated consideration of ancillary non-transfer-pricing issues by other experts within Associate Chief Counsel (International). The other issues would generally not be addressed in the APA itself, but might be addressed in a separate private letter ruling, prefiling agreement, or closing agreement issued to the specific taxpayer.
  25. For example, some payments, if they are capitalized, may reduce the taxpayer’s liability for BEAT, but the ability to capitalize the item depends on how the payments are characterized in the first instance. Historically, the APMA program considered its remit limited to issues regarding the arm’s-length result (i.e., pricing of controlled transactions). It is an open question whether the APMA program may be willing to modify this practice, in view of the importance of determining character under various TCJA provisions.
  26. Prop. Treas. Reg. Section 1.59A-3(b)(3)(i)(A).


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