However, it is possible that a subject may be able to negotiate a unilateral APA involving only the taxpayer and the IRS. In this case, both parties negotiate an appropriate TPM only for U.S. tax purposes. If the taxpayer is involved in a dispute with a foreign tax authority over the registered transactions, he can apply for a discharge by asking the competent US authority to initiate a procedure of mutual agreement. This, of course, implies the entry into force of an applicable foreign income tax agreement. Is the APA program independent of the audit function of the tax office? Is it independent of the relevant authorities dealing with other cases of double taxation? Does the country have a pre-price program (APA)? If so, is the program widespread? Are there unilateral, bilateral and multilateral APAs? APAs may cover transfer prices for transactions with all related parties, including transfers of intangible assets and assets, intercompany services, CSAs and financial transactions, including guarantees and income allocation of a financial institution involved in the global trading of financial instruments. In addition to traditional transfer pricing issues, ASAs may also cover some other tax issues for which compensation principles may be relevant, as well as incidental issues. A pre-price agreement (APA) is a prior agreement between a tax payer and a tax authority on an appropriate transfer pricing method (TPM) for a number of transactions involved during a specified period („covered transactions”). For many PPs who are actually or in negotiations, there is a tension between obtaining a long-term transfer pricing guarantee and the need to deal with unexpected economic disruptions, such as the conditions that many companies now face as a result of the effects of COVID-19. The APA is essentially a long-term contract between a tax authority and a taxpayer whose main feature is that the tax administration will not disrupt the transfer prices of the subject as long as the subject applies an agreed method of setting those prices. Since the advent of the OECD`s Erosion and Profit Transfer (BEPS) project, many taxpayers have turned to APAs to address the uncertainty of the changing international tax landscape. The United States established the world`s first official APA program in 1991.
The current program is called the Advance Pricing and Mutual Agreement (APMA). Unilateral, bilateral and multilateral APAs are available. However, the APMA program may require a specific justification for ceasing a unilateral APA on transactions with a contractor for which a bilateral or multilateral APA would be available. In 2018 and 2019, the IRS Advance Pricing and Mutual Agreement (APMA) received 324 APA applications and closed 227 APAs. The U.S. program is more popular than ever, a phenomenon that extends to APA programs in many countries around the world. There are many advantages to getting an APA. The APA provides security for transfer pricing issues that might otherwise lead to lengthy disputes with the IRS or foreign tax authorities. APAs can offer a particularly cost-effective solution by providing a high level of security for multiple fiscal years.