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Negotiating Advance Pricing Agreements
Caplin & Drysdale
Negotiating Advance Pricing Agreements

The IRS's Advance Pricing Agreement ("APA") program can provide an excellent mechanism to resolve cross-border transfer pricing controversies before they occur, on a unilateral, bilateral or even multilateral basis. Since the program began in 1991, Caplin & Drysdale has been helping clients take full advantage of this tax planning option.

Our inventory of completed APAs includes the first trilateral APA, the first maquiladora APA with Mexico, the first non-financial-products APA with the United Kingdom, the first APA involving a foreign-based cooperative, the first APA permitting recognition of interbranch financial transactions, and at least four of the handful of concluded multilateral APAs involving Japan. We presently are assisting several clients with bilateral and trilateral APA applications or renewals.

If you are considering an APA application or need assistance with a pending APA, Caplin & Drysdale can help.

Representative Engagements

  1. A multinational e-commerce company operating in dozens of countries confronted the difficult and increasingly common problem of sourcing e-commerce income and expense items.

    Result: Caplin & Drysdale devised and negotiated a bilateral APA that resolved the e-commerce sourcing issues in a manner that minimized the company's worldwide tax liability, was easy for the company to administer, and provided the company with predictable tax effects for years to come.
     
  2. The U.S. subsidiary of a multinational manufacturing company needed to put in place a royalty arrangement to compensate its foreign parent for manufacturing intangibles.

    Result: Caplin & Drysdale worked with the company and its economists to determine the appropriate royalty rate and won IRS approval for a 5-year APA term, plus a 5-year rollback of the APA methodology to resolve audit issues for prior years.
     
  3. A U.S. financial institution operating through branches and subsidiaries in foreign countries needed to allocate its revenue from global dealing in derivative financial instruments among numerous taxing jurisdictions.

    Result: Caplin & Drysdale devised a new, specifically tailored transfer pricing methodology and negotiated a first-of-its-kind multilateral global dealing APA to prevent double taxation.
     
  4. A foreign financial institution operating in the United States through a branch was faced with distorted tax results because it was unable, under existing U.S. law, to recognize foreign currency transactions between its U.S. and foreign branches.

    Result: Caplin & Drysdale negotiated the first multilateral APA that permitted a foreign taxpayer to take interbranch transactions into account in determining its U.S. taxable income.
     
  5. A leading U.S. tax publisher filed a lawsuit to force disclosure of APAs and related information. The IRS, after promising taxpayers for years that such information was protected, agreed in litigation to make some of the information publicly available.

    Result: Caplin & Drysdale assembled a collection of interested parties, including U.S. corporations and trade associations, who intervened in the litigation to object to the IRS concession and to the release of the information. Our effort delayed any disclosure of the information, thereby allowing Congress time to pass legislation that ensured the continued confidentiality of the information at issue.

Our Services

If you are evaluating how, or whether, to seek an APA or to renew an existing APA, here are some of the ways Caplin & Drysdale can help:

  • Advise you of APA experiences in your industry;
  • Estimate the cost and time involved in obtaining an APA or APA renewal;
  • Determine the most appropriate and advantageous APA transfer pricing methodology for your situation;
  • Prepare the APA application, including gathering the historical and financial information necessary for the APA analysis;
  • Engage an economist, if necessary, and oversee preparation of economic analysis;
  • Negotiate the terms of the APA with the IRS, and help shape Competent Authority negotiations; and
  • Negotiate a roll-back of the APA methodology to prior open years.
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