On September 28, 2022, the OECD published the Bilateral Advance Pricing Arrangement (“BAPA”) Manual. The manual proposes best practices for jurisdictions to streamline, expedite and improve BAPA processes based on member surveys. Most notably, the BAPA manual encourages jurisdictions to conclude BAPAs within 30 months and to work to further reduce completion times to 24 months or less.
Jason Osborn is a Tax partner in the firm’s Washington DC office. He provides sophisticated transfer pricing and international tax advice to multinational clients in wide range of industries, including financial institutions, pharmaceuticals, chemicals, software, automotive, consumer products, energy and transportation.
Jason re-joined Mayer Brown in 2013 after holding transfer pricing-related positions with Internal Revenue Service (“IRS”) from 2008-2012, initially as a team leader in the Advance Pricing Agreement (“APA”) Program and subsequently as a manager in the transfer pricing branch of the Office of Associate Chief Counsel (International). Leveraging this IRS experience, Jason brings to the table a unique and insider’s perspective in advising clients on complex transfer pricing matters and negotiating APAs. Prior to his IRS service, Jason was a senior Tax associate at Mayer Brown focused on transfer pricing matters.
On May 27, 2022, the OECD released two public consultation documents related to the tax certainty aspects of Amount A. The first, entitled Pillar One – A Tax Certainty Framework for Amount A (the Amount A Draft), proposes new mechanisms for multinational enterprises (MNEs) to obtain certainty on different aspects of Amount A. The second, entitled Pillar One – Tax certainty for issues related to Amount A (the Related Issues Draft), proposes a mandatory binding dispute resolution mechanism for issues related to Amount A, including transfer pricing and the attribution of profits to permanent establishments (PEs). Given the potential for Amount A to result in uncertainty, disputes and double taxation, these proposed mechanisms will be of critical importance to in-scope and potentially in-scope MNEs. Such MNEs should further note that both the Amount A Draft and the Related Issues Draft provide a short two-week public comment period that closes on June 10, 2022. …
On March 22, 2022, the Internal Revenue Service’s Advance Pricing and Mutual Agreement Program (“APMA”) released its 2021 Announcement and Report Concerning Advance Pricing Agreements (“2021 Annual Report”). The 2021 Annual Report shows that multinationals’ demand for advance pricing agreements (“APAs”) is high and increasing, with APMA receiving 145 APA applications in 2021, a 20% increase from 2020. The report similarly shows that APMA made steady progress in concluding APAs during 2021 with 124 completions, with notable highlights including a substantial increase in completions of bilateral APAs with Germany and a decrease in completions of bilateral APAs with India.
Continue Reading APMA’s 2021 APA Annual Report Shows High Demand for APAs by Multinationals and Steady Progress by APMA in Concluding Cases
In ancient Rome, a college of “augurs” would predict the future by observing the flight patterns of birds, examining the entrails of animal sacrifices, or interpreting natural phenomena. While perhaps less colorful, our method of divination will hopefully be a little more precise. To develop this blog post, we have consulted our own augurs and have summarized all our predictions for transfer pricing developments in the coming year.
Continue Reading Looking Forward: Predictions for 2022
On October 13, 2021, the G20 Finance Ministers and Central Bank Governors issued a Communiqué formally endorsing the political agreement reached by 136 countries of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) on a two-pillar framework to dramatically change the taxation of multinational enterprises (MNEs). The Communiqué calls on the IF…
On August 13, 2021, the IRS released a Chief Counsel Advice (“CCA”) (CCA 202132009) addressing the tax treatment of intercompany reimbursements of the Branded Prescription Drug (“BPD”) fee, a non-deductible excise tax imposed by the Patient Protection and Affordable Care Act on entities that manufacture or import branded prescription drugs for sale to specified government programs. The CCA concludes that intercompany reimbursements of the BPD fee are not per se excludable from gross income, but rather, the inclusion or exclusion of the reimbursement depends on whether the entity paying the fee was the beneficiary of the payment under the facts and circumstances. For pharmaceutical companies subject to the BPD fee, the CCA stops short of providing certainty that reimbursements of the fee are per se excludable, but nevertheless, offers useful guidance on how the reimbursements might be structured to support exclusion in many cases. Outside of the pharmaceutical industry, companies in other industries that pay and receive intercompany reimbursements of other material non-deductible costs may also find the CCA’s guidance to be instructive by analogy.
Continue Reading IRS CCA Addresses Intercompany Reimbursements of Branded Prescription Drug Fee: Guidance May be Relevant to Taxpayers Across Industries with Material Non-Deductible Expenses
On September 9, 2021, the Treasury Department and the Internal Revenue Service (“IRS”) issued its Priority Guidance Plan for 2021-2022. The Priority Guidance Plan gives the public a sense of what regulations and other guidance the Treasury Department and the IRS might develop over the following 12 months. Among dozens of other pending and potential guidance projects, the Priority Guidance Plan lists the following two new potential section 482 regulations projects:
- Regulations under §482 clarifying the effects of group membership (e.g., passive association) in determining arm’s length pricing, including specifically with respect to financial transactions.
- Regulations under §482 further clarifying certain aspects of the arm’s length standard, including (1) coordination of the best method rule with guidance on specified methods for different categories of transactions, (2) discretion to determine the allocation of risk based on the facts and circumstances of transactions and arrangements, and (3) periodic adjustments.
On August 5, 2021, the OECD released updated Peer Review Results for preferential tax regimes reviewed by the OECD Forum on Harmful Tax Practices (“FHTP”) in connection with BEPS Action 5. Of particular interest to Multinational Enterprises (“MNEs”), the Peer Review Results report that the Foreign-Derived Intangible Income (“FDII”) regime is already “in the process of being eliminated” and that “the United States has committed to abolish this regime.”
The possibility that FDII might be repealed should come as no surprise given the Biden Administration’s Green Book proposal to eliminate FDII. And in any event, the repeal cannot actually take effect until and unless FDII is repealed by legislation. Nevertheless, for MNEs that would be adversely affected by the possible repeal, the references in the Peer Review Results send a strong signal that FDII repeal may be a key priority in future tax reform negotiations.…
In February 2021, the Organisation for Economic Co-operation and Development (“OECD”) issued a handbook linked with the official roll-out of its International Compliance Assurance Programme (“ICAP”). ICAP was first introduced as a pilot in January 2018 (“ICAP 1.0”) as a voluntary program where MNE groups may receive “comfort and assurance” from multiple tax administrations as to the veracity of the MNE group’s transfer pricing allocations and numerous types of international transactions. While some notable countries did not participate in ICAP 1.0 (for example, Germany), the pilot program received positive reviews by a number of MNE groups. In March 2020, the OECD enhanced the pilot program (“ICAP 2.0”) to encourage more countries to join. On March 22, 2021, the OECD announced an initial list of twenty countries that are participating in the official program.
Continue Reading ICAP, a New Tool in the Multiverse of Multinational Tax Dispute Management
In the U.S., transfer pricing benchmarking under the Comparable Profits Method (“CPM”) or Transactional Net Margin Method (“TNMM”) depends on the availability of public company financial data. In recent years, the decreasing number of U.S. listed and non-exchange traded companies has made this benchmarking more challenging, not only due to the smaller population from which the comparable can be selected: Many of the remaining listed and non-exchange traded companies are either large companies that own intangibles or small companies that often operate at a loss. This trend should prompt transfer pricing practitioners to consider new, creative approaches in selecting comparable companies for purposes of CPM/TNMM, and in appropriate cases, to re-consider transactional or other methods that do not rely on publicly available profitability data. Further, an APA might now be a prudent choice to obtain certainty, even if APAs had not been considered necessary or worthwhile from a cost-benefit perspective in the past to mitigate tax risk.
Continue Reading The Vanishing U.S. Comparable