On January 29, 2024, the OECD released the results and statistics for its growing International Compliance Assurance Program (“ICAP”). The data spans the life of the ICAP program, dating back to the first pilot program that began in January 2018, through its full program operations as of October 2023. In all, the statistics generally suggest that the program has been efficient and productive, with most participants receiving mostly low-risk outcomes from tax administrations.Continue Reading ICAP: Life in the Fast Lane
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.
Last week, the IRS released a mysterious new audit “campaign” that may implicate – inadvertently or otherwise – transfer pricing practices. The campaign, which was announced on August 8, is simply entitled “Inflated Cost of Goods Sold.”
The only glimmer of explanation the IRS gives as to what exactly this is all about is the brief statement that the campaign “focuses on LB&I taxpayers that have indications of inflated Cost of Goods Sold to reduce taxable income.”
But this tells us very little. Absent book-tax differences (e.g., FIFO/LIFO materials inventory conventions), an increase in COGS will always decrease taxable income. This is hardly revelatory. Two old IRS practice units from 2014 (“Purchase of Tangible Goods from Foreign Parent – CUP Method” and “Sale of Tangible Goods from a CFC to USP – CUP Method”) recognize the truism that increasing COGS reduces taxable income. So what? What facets of COGS gives the IRS concern? Direct Labor? Overhead? Standard Material Costs? Variances?Continue Reading Compliance Campaign: COGS Cops Coming
Mayer Brown announced today that Sonal Majmudar, former international tax counsel with the Internal Revenue Service (IRS), joined its Tax practice as a partner. Sonal will be resident in the firm’s Washington DC office. Her arrival bolsters Mayer Brown’s market-leading, global tax offerings, particularly with regard to transfer pricing controversies and high-stakes international disputes.
On April 25, 2023, the IRS’s Advance Pricing and Mutual Agreement (“APMA”) Program issued new interim guidance for its review of taxpayer Advance Pricing Agreement (“APA”) requests. Notably, the guidance introduces an “optional pre-submission review” for taxpayers that wish to submit a prefiling memorandum before submitting a formal APA request. Based on the pre-submission review, APMA will give a preliminary opinion whether it believes that an APA is well-suited to achieve tax certainty for the proposed covered transactions. The new interim guidance also instructs APMA personnel on how to review formal taxpayer APA requests for acceptance to the program, or whether to suggest an “alternative workstream” such as the International Compliance Assurance Program (“ICAP”) or a joint audit. Continue Reading APMA’s New Interim APA Guidance
On February 1, 2023, the OECD Forum on Tax Administration published its Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements. (“Multilateral MAP and APA Manual” or the “Manual”). The Multilateral MAP and APA Manual provides new guidance to both tax administrations and taxpayers on how both multilateral MAPs and APAs can be negotiated and implemented under existing bilateral tax treaties in circumstances where a double tax issue cannot be adequately resolved without involving one or more third jurisdictions. The Multilateral MAP and APA Manual is similar in some ways to the Bilateral Advance Pricing Arrangement Manual (“Bilateral APA Manual”) that the OECD published in September 2022, which was the subject of a prior blog post. However, whereas the Bilateral APA provided specific, detailed, best practices to tax administrations and taxpayers reflecting decades of experience within a well-established process, the Multilateral MAP and APA Manual aims to provide a more basic awareness of how multilateral MAPs and APAs can be negotiated and implemented in appropriate cases.Continue Reading OECD’s New Multilateral MAP and APA Manual Adapts Bilateral Processes for a Multilateral World
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.Continue Reading Prepare for Warp Speed: New Goal to Conclude APAs is 24–30 Months
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. Continue Reading OECD Releases Public Consultation Documents on Tax Certainty Aspects of Amount A: Comments Due 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…