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

On March 23, 2021, the United States’ Advance Pricing and Mutual Agreement Program (“APMA Program”) released its 2020 annual report (“2020 Annual Report”) to the public concerning advance pricing agreements (“APAs”). COVID-19 has caused unprecedented disruptions  to taxpayers and tax administrations alike, but the 2020 Annual Report shows that the APMA Program remained highly productive in 2020. Last year taxpayers filed 121 APA requests—the same amount as in 2019. And in 2020, APMA executed 127 APAs—seven more than the prior year.

Continue Reading APMA to COVID-19: Don’t Stop Me Now

The Mutual Agreement Procedure (“MAP”) is a useful dispute resolution mechanism for multinational companies facing a transfer pricing or other assessment resulting in double tax, whether in the U.S. or abroad. In order to fully avail themselves of the advantages of the MAP process, taxpayers should pay careful attention to the applicable procedures to optimize their chances of a successful resolution.

Continue Reading The Mutual Agreement Procedure (“MAP”): Advantages and Potential Pitfalls for Resolution of Double Tax Issues

Last week, the IRS issued new guidance that addresses “telescoping” in mutual agreement procedure (“MAP”) and advance pricing agreement (“APA”) cases. Very generally, the guidance disallows (subject to a $10 million materiality exception) telescoping for tax years starting in 2018, when the Tax Cuts and Jobs Act (“TCJA”) came into effect, while continuing to allow telescoping for pre-2018 years in appropriate cases. According to the IRS’s Advance Pricing and Mutual Agreement (“APMA”) program, the new guidance was needed to address the impact of the TCJA “and its many interlocking provisions that require careful determination (and redetermination, as needed) of a U.S. taxpayer’s taxable income and tax attributes.” The new guidance has the potential to drive up compliance costs by increasing the number of tax returns that taxpayers must file to resolve MAP and APA resolutions for post-TCJA years (and resolutions spanning both pre- and post-TCJA years).

Continue Reading Telescoping into the Void

The Inland Revenue Authority of Singapore (“IRAS”) has issued transfer pricing guidelines for companies affected by the COVID-19 pandemic, which includes guidance on documentation requirements, term-testing for related party transactions and Advance Pricing Arrangements (“APA”).

Continue Reading Singapore’s Transfer Pricing Guidelines for COVID-Affected Businesses

Responding to the potential disruption created by COVID-19 for transfer pricing arrangements, the Advance Pricing & Mutual Agreement (“APMA”) Program on May 11, 2020, issued informal guidance related to the pandemic. The guidance makes clear that APMA will consider the impact of COVID-19 on both pending requests and completed agreements. It also reveals that APMA is already discussing COVID-19 issues with treaty partners.

Continue Reading COVID-19 and APAs: APMA Signals Flexible Case-by-Case Approach to Address Special 2020 Transfer Pricing Challenges in APAs