Wed, Feb 19, 2014

Transfer Pricing Times: Volume XI, Issue 2

The IRS recently proposed changes to the Revenue Procedure (“Rev. Proc.”) relating to Advance Pricing Agreements (“APAs”) and the Competent Authority process. 

Both of these proposals address structural changes undertaken by the IRS since 2006, when the current versions of the Revenue Procedures for these areas were issued, including the creation of the Large Business & International Division, the realignment and consolidation of IRS transfer pricing resources, establishment of Transfer Pricing Operations, and the creation of the APA and Mutual Agreement (“APMA”) program. The proposed changes will become effective only when finalized, which is not expected to occur until the latter part of 2014.

Proposed Revision of Procedures for APAs

On December 9, 2013, the IRS released Notice 2013-791 containing proposed revisions to Rev. Proc. 2006-9. This proposal was drafted, in part, to improve the “clarity, readability, and organization” of the APA process, specifically by updating the procedures for requesting, negotiating, and complying with APAs. As proposed, the draft Notice 2013-79 would affect 24 sections of the existing Rev. Proc. 2006-9. The proposal provides administrative clarifications, including the codification of informal standard practices, and allows for abbreviated APA requests and increased coordination with Competent Authority requests. The draft revisions also provide for more stringent requirements for pre-filing conferences and additional information disclosures, such as value chain diagrams and legal structures, personnel charts, and intercompany flows.

In addition to administrative revisions, several of the proposed changes could fundamentally affect how taxpayers approach APAs. For example, upon entering into an APA, the taxpayer’s open years may be subject to review by the IRS, regardless of the tax years specified within the APA application. In addition, the IRS would be granted discretion to examine other tax issues connected with, but not directly included in, the scope of coverage specified in the APA (e.g., open Mutual Agreement Procedure issues, income sourcing, penalties, interest, etc.). Overall, it is intended that the proposed changes would provide more certainty and structure to the APA process, but they may also raise new reservations for taxpayers as they evaluate whether to pursue an APA.

Competent Authority Changes

On November 22, 2013, the IRS released Notice 2013-78, containing proposed revisions to Rev. Proc. 2006-54,2 intended to improve the “clarity, readability, and organization” of the existing Competent Authority procedures. As proposed, the draft Notice would affect 26 sections of Rev. Proc. 2006-54 (which was released in December 2006 and updated, at the time, for Competent Authority procedures). Similar to the proposed APA changes, one of the more notable proposals in Notice 2013-78 would grant Competent Authority additional powers to expand beyond the scope of the tax matter specified by the taxpayer in its Competent Authority request. Additionally, in certain situations, taxpayers must file a “pre-filing memorandum” that explains the factual and legal reasons for seeking Competent Authority assistance. This filing must also disclose the steps taken in the corresponding foreign tax jurisdiction and may result in a mandatory pre-filing conference with Competent Authority.

The draft Notice also shortens several procedural timeframes, requiring that taxpayers seeking relief from U.S.-initiated adjustments must coordinate with Competent Authority more quickly. For example, taxpayers utilizing Fast Track Settlement, a dispute resolution procedure sometimes used at the conclusion of an IRS examination, must specify a Competent Authority representative as a named participant in the process in order to later request assistance from Competent Authority. Additionally, a new deadline has been imposed on Simultaneous Appeals Procedures (“SAP”), an option providing taxpayers with a joint review by the IRS Office of Appeals and Competent Authority. Taxpayers must now file an SAP request within 60 days of Competent Authority’s acceptance of their request for assistance, as compared with no deadline under existing rules.

Overall, the proposed Notice provides more certainty and structure to the Competent Authority process, but it also requires greater advance planning on the part of taxpayers and expands the Competent Authority’s powers beyond their current scope.

OECD Releases Discussion Draft on Transfer Pricing Documentation Initiative for Public Comment

On January 30, 2014, the OECD’s Committee on Fiscal Affairs released its discussion draft on Transfer Pricing Documentation and Country-by-Country Reporting (“Discussion Draft”). This Discussion Draft comes after the OECD solicited and received comments on its White Paper on Transfer Pricing Documentation in late 2013 (see Duff & Phelps Transfer Pricing Times, Volume X, Issue 8). The current Discussion Draft contains an initial draft of revised guidance on transfer pricing documentation and country-by-country reporting that are intended to replace the current guidelines under Chapter V of the OECD Transfer Pricing Guidelines. Interested parties were encouraged to provide their comments to the OECD on or before February 23, 2014. A public consultation event will then be held at the end of March 2014 at OECD headquarters in Paris, France, with speakers selected from those who provide written comments. For a copy of the Discussion Draft, please refer to the OECD’s website.

EU Joint Transfer Pricing Forum Report Released 

In January 2014, the EU Joint Transfer Pricing Forum (“JTPF”)adopted a Report on Compensating Adjustments (“JTPF Report”). This report is in line with the work program of the JTPF for 2011 – 2015,4 as determined by Member States,5 and reflects the discussion on compensating adjustments that the JTPF had in June and November of 2013. The JTPF Report provides practical guidance on avoiding double taxation and double non-taxation in the application of compensating adjustments in light of the different practices Member States employ. This guidance is applicable to compensating adjustments which are made in the taxpayer’s accounts and explained in the taxpayer’s transfer pricing documentation. However, price adjustments and theoretical issues remain outside the scope of this report.


1. IRS Internal Revenue Bulletin: 2013-50, Notice 2013-79: Proposed Revision of Procedures for Advance Pricing Agreements
2. IRS Internal Revenue Bulletin: 2013-49, Notice 2013-78: Proposed Revision of Procedures for Requesting Competent Authority Assistance Under Tax Treaties
3. EU JTPF is an expert group composed of EU Member States and private-sector experts in the field of transfer pricing. The JTPF assists and advises the European Commission on EU transfer pricing issues.
4. At its first meeting on June 9, 2011, the JTPF decided that certain topics would form the basis of its work program for 2011 – 2015. JTPF members also agreed that this work program would remain open for any future item(s) the group might wish to include. A copy of the work program is available on the European Commission’s website
5. Member States include Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

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