Source: https://www.irs.gov/irb/2015-15_IRB/ar14.html
Timestamp: 2017-02-27 15:54:25
Document Index: 572343971

Matched Legal Cases: ['§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 521', '§ 1', '§ 1', '§ 521', '§ 1', '§ 521', '§ 11', '§ 11', '§ 521', '§ 4', '§ 521', '§ 521', '§ 11', '§ 521', '§ 11', '§ 521', '§ 521', '§ 1', '§ 1', '§ 1']

Internal Revenue Bulletin - April 13, 2015 - Announcement 2015–11
Internal Revenue Bulletin: 2015-15 April 13, 2015 Announcement 2015–11
Announcement and Report Concerning Advance Pricing Agreements
Part I. The APMA Program – Structure, Composition, and Operation
Part II. APMA Program Statistical Data
Table 1: APA Applications Filed
Table 2: Executed and Pending APAs
Table 3: APAs Revoked or Cancelled and Applications Withdrawn
Table 4: APAs Finalized or Renewed by Industry
Table 4a: Manufacturing APAs Finalized or Renewed
Table 4b: Wholesale/Retail Trade APAs Finalized or Renewed
Part III. General Descriptions of APAs Executed in 2014
Nature of the Relationships
Covered Transactions, Functions and Risks, and Tested Parties
Transfer Pricing Methods Used
Sources of Comparables, Comparables Selection Criteria, and Nature of Adjustments to Comparables or Tested Party Data
Ranges, Targets, and Adjustment Mechanisms
Term Lengths for APAs
Table 6: Term Lengths (Including Rollback Years)
Amount of Time Taken to Complete New and Renewal APAs
Table 7: Months to Complete New and Renewal APAs in 2014
Efforts to Ensure Compliance with APAs
Nature of Documentation Required in Annual Report
Approaches for Sharing of Currency or Other Risks
APPENDIX 1–Model APA (based on Rev. Proc. 2006–9)
ADVANCE PRICING AGREEMENT between [Insert Taxpayer’s Name] and PARTIES
APA RECORDS
APPENDIX 2 – APMA Contacts
This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act
of 1999, which requires the Secretary of the Treasury to report annually to the public concerning advance pricing agreements
(APAs) and the Advance Pricing and Mutual Agreement (APMA) Program, formerly known as the Advance Pricing Agreement (APA)
Program. The first report covered calendar years 1991 through 1999. Subsequent reports covered separately each calendar year
2000 through 2013. This sixteenth report describes the experience, structure, and activities of the APMA Program during calendar
year 2014. It does not provide guidance regarding the application of the arm’s length standard.
Part I of this report includes information on the structure, composition, and operation of the APMA Program; Part II presents
statistical data for 2014; and Part III includes general descriptions of various elements of the APAs executed in 2014, including
types of transactions covered, transfer pricing methods used, and completion time.
Hareesh Dhawale
Director, Advance Pricing and Mutual Agreement Program
[Pub. L. 106–170 § 521(b)(2)(A)]
In February of 2012, the former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations,
Large Business and International Division of the IRS (TPO) and combined with the United States Competent Authority (USCA)
staff responsible for transfer pricing cases, thereby forming the APMA Program.
After the formation of the APMA Program, the team that developed the IRS position in a bilateral or multilateral case and
finalized the APA with the taxpayer also became responsible for discussing the case and obtaining an agreement with the treaty
partner. This compression of functions into a single APA team has helped to eliminate inefficiencies and decreased the amount
of time it takes to reach resolution once a case is set for discussion with the treaty partner.
As of December 31, 2014, the APMA Program was comprised of 59 team leaders, 22 economists, and 10 senior managers organized
in 10 groups (7 team leader groups and 3 economist groups). The team leader groups are organized by country with each group
having responsibility for multiple countries. Because of the large volume of cases with certain treaty partners, some countries
are the responsibility of more than one group. The APMA Program’s main office is located in Washington, DC, and it also has
a significant presence in San Francisco and the Los Angeles area.
During the last quarter of 2013, new proposed revenue procedures governing APA applications and MAP applications were released
for public comment in Notice 2013–79, 2013–50 I.R.B. 653, and Notice 2013–78, 2013–50 I.R.B. 633, respectively. These proposed
revenue procedures reflect the changes in APMA’s structure, and more importantly, were informed by the cumulative experience
of more than 20 years of APA practice in the United States, which has produced more than eleven hundred unilateral, bilateral,
and multilateral agreements since 1991. There are now over fourteen hundred agreements as indicated in this Report.
The model APA agreement, which was last revised significantly in 2009 and is currently under review for future changes, appears
in this report as Appendix 1. See Pub. L. 106–170 § 521(b)(2)(B). A list of primary APMA contacts is included as Appendix 2.
[Pub. L. 106–170 § 521(b)(2)(C)(i–viii)]
§ 521(b)(2)(C)(i)
Filed 1991–1999[a]
Filed 2000–2013
Filed in 2014
Total Filed 1991–2014
[a] The first APA Statutory Report, which compiled APA data from 1991–1999, did not report the cumulative number of applications
for those years by submission type, so the cumulative totals cannot be reported in that manner.
This image is too large to be displayed in the current screen. Please click the link to view the image.
The table above illustrates the number of applications filed per year; however, the table does not include situations in which
the taxpayer has paid a user fee but has not yet submitted a substantially complete APA request. As of December 31, 2014,
APMA had received 33 user fee filings in addition to the 108 complete APA applications.
§ 521(b)(2)(C)(ii–vi)
Total Executed 1991–2013
Total Executed in 2014
Total Executed 1991–2014
Total Pending
Renewals Executed in 2014
Renewals Pending
Of the 101 agreements executed in 2014, 52 of the agreements (51 percent) were new APAs (i.e., not a renewal of a prior APA). This was an increase from the 45 (47 percent) new APAs executed in 2013.
As the chart above illustrates, more than half of the total number of bilateral APAs executed in 2014 involved the United
States entering into mutual agreements with Japan and Canada.
There was no material change in the number of pending APAs between 2013 and 2014. Japan and Canada continued to account for
more than half of the pending bilateral APAs in 2014.
§ 521(b)(2)(C)(vii)
Revoked or Cancelled 2014
Total Revoked or Cancelled 1991–2014
Applications Withdrawn in 2014
Total Applications Withdrawn 1991–2014
Table 4: APAs Finalized or Renewed[3] by Industry
§ 521(b)(2)(C)(viii)
Wholesale/Retail Trade
Computer and Electronic Products
Electrical Equipment, Appliance and Components
All Other Types of Manufacturing
Merchant Wholesalers, Durable Goods
Merchant Wholesalers, Nondurable Goods
All Other Types of Other Wholesale/Retail Trade
[Pub. L. 106–170 § 521(b)(2)(D) and (E)]
§ 521(b)(2)(D)(i)
As in prior years, more than half of the APAs executed in 2014 involved transactions between non-U.S. parents and U.S. subsidiaries.
§ 521(b)(2)(D)(ii–iii)
In the majority of APAs, the covered transactions involve numerous business functions and risks. For instance, with respect
to functions, APAs involving manufactured products typically involve a controlled group that conducts research and development
(R&D), engages in product design and engineering, manufactures the product, markets and distributes the product, and performs
support functions such as legal, finance, and human resources services. Regarding risks, the controlled group may bear a variety
of risks including market risks, R&D risks, financial risks, credit and collection risks, product liability risks, and general
business risks. In the APA evaluation process a significant amount of time and effort is devoted to understanding how the
functions and risks are allocated amongst the controlled group of companies that are party to the covered transactions. Generally,
the tested party that is chosen will be the least complex of the controlled taxpayers that does not make nonroutine contributions.
Consistent with prior years, more than half of the tested parties of the APAs executed in 2014[4] fell into one of two categories, i.e., U.S. distributors and U.S. service providers. Combined, these two types of tested parties represent over 50 percent of
the total.
Although more than 75 percent of covered transactions involve tangible goods and services transactions, the IRS also has successfully
completed numerous APAs involving transfers of intangibles. While complex transactions involving intangibles may be more challenging
than other types of transactions and represent a smaller percentage of the APA inventory than other types of transactions,
the IRS continues to seek opportunities to work with taxpayers and treaty partners to provide prospective certainty for such
transactions wherever appropriate.
More than 60 percent of the tested parties in the APAs executed in 2014 involved distribution or related functions, i.e., marketing and product support.
The risks borne by the tested parties were primarily general business risks, market risk, and credit and collection risks.
§ 521(b)(2)(D)(iv)
As shown on the following graphs, and consistent with prior years, the primary transfer pricing method (TPM) used for transfers
of both tangible and intangible property in APAs executed in 2014 was the comparable profits method/transactional net margin
method (CPM/TNMM).
In controlled transactions using the CPM/TNMM, operating margin was the most common profit level indicator (PLI) used to benchmark
results for transfers of tangible and intangible property. As used here, “operating margin” means the ratio of operating profits
to sales[5] and “Berry Ratio” means the ratio of gross profit to operating expenses.[6]
For services transactions, the majority of cases applied the CPM/TNMM or the services cost method. The services cost method
evaluates the amount charged for certain services with reference to the total services costs.[7]
When the CPM/TNMM is used to benchmark services transactions, the operating profit to total services cost ratio and operating
margin are the most frequently used PLI.
§ 521(b)(2)(D)(v–vii)
For the APAs executed in 2014 that used external comparables data in the analysis, the most widely used data source for comparables
was Standard and Poor’s Compustat/Capital IQ database. Other sources were also used in appropriate cases (e.g., where the tested party was not the U.S. entity or transaction-based methods were applied). Other commonly used sources include
the following databases.
Table 5: Commonly Used Sources of Comparable Data
Avention (formerly known as OneSource)
Global Vantage
RoyaltySource
RoyaltyStat
LoanConnector
In adjusting comparables, the standard balance sheet adjustments identified in Treas. Reg. § 1.482–1(d) and § 1.482–5(c),
including adjustments to payables, receivables, and inventory, were made in the majority of cases. Where appropriate, accounting
adjustments were made to convert from LIFO to FIFO inventory accounting, and a small number of cases also involved the accounting
reclassification of expenses, e.g., from COGS to operating expenses.
§ 521(b)(2)(D)(viii–ix)
The majority of transactions covered in APAs target an interquartile range as described in Treas. Reg. § 1.482–1(e)(2)(iii)(C).
Where the transaction involves a royalty payment for the use of intangible property, both points and ranges have been used.
In some cases where the covered transaction is the payment of a royalty based solely on external royalty agreements, a secondary
method, e.g., a test of the post-royalty operating margin, has been imposed. The testing periods of the APAs executed in 2014 included
either: (1) a single year, (2) the term of the APA only, or (3) the term of the APA plus rollback years.
APAs executed in 2014 include a number of mechanisms for making adjustments to tested party results when the results fall
outside the range or do not match the point required by the APA. The following are examples of the mechanisms used: an adjustment
bringing the tested party’s results to the closer edge of the range applied to the results of a single year; an adjustment
to the closer edge of the range applied to the results over the APA term; an adjustment to the specified point or royalty
rate; or an adjustment to the median of the range for a single year.
§ 521(b)(2)(D)(v)
The model APA used by the IRS (included as Appendix 1 of this report) includes a standard critical assumption that there will
be no material changes to the taxpayer’s business or to its tax or financial accounting practices during the APA term. Each
of the APAs executed in 2014 included this standard critical assumption. A few bilateral cases have included critical assumptions
tied to either the taxpayer’s profitability in a certain year or over the term of the APA, or to the amount of non-covered
transactions as a percentage of the taxpayer’s revenue. Under § 11.03(2) of Rev. Proc. 2006–9, 2006–2 I.R.B. 278, the IRS
may require the taxpayer to show compliance with all the critical assumptions included in the APA. If the taxpayer’s results
violate the critical assumption, then the taxpayer is required to report to the IRS the event or events creating the violation.
Pursuant to § 11.06(3) of Rev. Proc. 2006–9, when a critical assumption is violated, the APMA Director may agree to modify
the APA. However, if there is no agreement to modify the APA, then the APA may be cancelled.
§ 521(b)(2)(D)(x)
Term Length (years)
Number of APAs
As described in § 4.07 of Rev. Proc. 2006–9, taxpayers should request at least a 5-year term in an APA submission, although
the appropriate APA term is decided on a case-by-case basis. Of the APAs executed in 2014, 41% had a 5 year term. For APAs
with terms of greater than 5 years, a substantial number of those were submitted as a request for a 5-year term, and the additional
years were agreed to between the taxpayer and the IRS (or, in the case of a bilateral APA, between the IRS and the foreign
government upon the taxpayer’s request). In 2014, less than 10 percent of the executed APAs included terms of 10 years or
longer. The longer terms were agreed to based on the particular circumstances of each individual case and were often granted
to ensure a reasonable amount of prospectivity in the APA term.
§ 521(b)(2)(E)
Unilateral & Bilateral
New & Renewal
The median time required to complete bilateral APAs executed in 2014 showed a small decrease whereas unilateral APAs executed
in 2014 experienced a small increase in the median time to complete as compared with 2013.
§ 521(b)(2)(F)
As described in § 11.01 of Rev. Proc. 2006–9, APA taxpayers are required to file annual reports to demonstrate compliance
with the terms and conditions of the APA. The filing and review of annual reports is a critical part of the APA process. Through
annual report review, the APMA Program monitors taxpayer compliance with APAs on a contemporaneous basis. Annual report review
provides current information on the success or problems associated with the various TPMs adopted in the APA process.
Each report received by the APMA Program is assigned to a designated APMA team leader. Whenever possible, annual report reviews
are assigned to the team leader who worked the case, or another staff member who is already familiar with the relevant facts
and terms of the agreement. Other team leaders and economists may assist the assigned staff member as well. The annual report
is also sent to the field personnel with exam jurisdiction over the taxpayer. The field personnel conduct a parallel compliance
review and coordinate with APMA personnel to resolve any questions or problems that might arise.
Given the substantial increase in APAs executed during 2012–2014 relative to prior years, there has been a substantial increase
recently in the number of annual reports filed and reviewed by the APMA program. In 2014, the APMA Program received 802 annual
reports of which 438 were for APAs executed in either 2012 or 2013. This was a considerable increase from the 552 reports
received in 2013 (441 of which were for APAs executed in 2012 or 2013). Of those reports received in 2014, 641 of them have
been reviewed.
§ 521(b)(2)(D)(xi)
APAs executed in 2014 required taxpayers to provide various documents with their annual reports, depending on the specific
facts of the case. While not every annual report will include each of the documents listed below (e.g., where no compensating adjustment is made, no documentation is required) the documents listed below are required where the
facts demonstrate a need for such documentation.
Statement identifying all material differences between Taxpayer’s business operations during APA Year and description of Taxpayer’s
business operations contained in Taxpayer’s request for APA. If there have been no such material differences, a statement
Statement of all material changes in the Taxpayer’s accounting methods and classifications, and methods of estimation, from
those described or used in Taxpayer’s request for the APA. If there has been no material change in accounting methods and
classifications or methods of estimation, a statement to that effect.
Description of any failure to meet Critical Assumptions. If there has been none, a statement to that effect.
Copy of the APA.
Financial analysis demonstrating Taxpayer’s compliance with TPM.
Organizational chart.
Any change to the taxpayer notice information in section 14 of the APA.
The amount, reason for, and financial analysis of any compensating adjustment under Paragraph 4 of Appendix A and Rev. Proc.
2006–9, § 11.02(3), for the APA Year, including but not limited to: the amounts paid or received by each affected entity;
the character (such as capital or ordinary expense) and country source of the funds transferred, and the specific line item(s)
of any affected U.S. tax return; and any change to any entity classification for federal income tax purposes of any member
of Taxpayer’s group that is relevant to the APA.
The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the APA Year,
as reflected on Schedule M–1 or Schedule M–3 of the U.S. return for the APA Year.
Financial statements and any necessary account detail to show compliance with the TPM, with a copy of the opinion from an
independent CPA or other documentation required by paragraph 5(f) of the APA.
Where required by paragraph 5(f) of the APA, certified public accountant’s opinion that financial statements present fairly
the financial position of Taxpayer and the results of its operations, in accordance with a foreign GAAP.
Where applicable, financial statements as prepared in accordance with a foreign GAAP.
Various work papers.
Where applicable, a review of the financial statements by a certified public accountant.
§ 521(b)(2)(D)(xii)
In appropriate cases, APAs may provide specific approaches for dealing with currency risk, such as adjustment mechanisms and/or
critical assumptions.
[§ 521(b)(2)(B)]
ADVANCE PRICING AGREEMENT between [Insert Taxpayer’s Name] and THE INTERNAL REVENUE SERVICE
The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name], EIN ________.
[Insert Taxpayer Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to as “Taxpayer”),
and is entering into this APA on behalf of itself and other members of its consolidated group.
Taxpayer’s principal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].
This APA contains the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions
under I.R.C. section 482, the Treasury Regulations thereunder, and any applicable tax treaties.
{If renewal, add} [Taxpayer and IRS previously entered into an APA covering taxable years ending _____ to ______, executed on ________.]
1. Covered Transactions. This APA applies to the Covered Transactions, as defined in Appendix A.
2. Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.
3. Term. This APA applies to the APA Term, as defined in Appendix A.
4. Operation.
a. Revenue Procedure 2006–9 governs the interpretation, legal effect, and administration of this APA.
b. Nonfactual oral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue Procedure 2006–9
(including any proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in compromise
negotiations within the meaning of Rule 408 of the Federal Rules of Evidence.
5. Compliance.
a. Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of this
APA on its timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for any taxable year covered by this
APA (APA Year) is filed prior to, or no later than 60 days after, the effective date of this APA, then Taxpayer must report
its taxable income for that APA Year in an amount that is consistent with Appendix A and all other requirements of this APA
either on the original U.S. Return or on an amended U.S. Return filed no later than 120 days after the effective date of this
APA, or through such other means as may be specified herein.
b. {Use or edit the following when U.S. Group or Foreign Group contains more than one member.} [This APA addresses the arm’s-length nature of prices charged or received in the aggregate between Taxpayer and Foreign Participants
with respect to the Covered Transactions. Except as explicitly provided, this APA does not address and does not bind the IRS
with respect to prices charged or received, or the relative amounts of income or loss realized, by particular legal entities
that are members of U.S. Group or that are members of Foreign Group.]
c. For each APA Year, if Taxpayer complies with the terms and conditions of this APA, then the IRS will not make or propose
any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate between Taxpayer and Foreign
Participant[s] with respect to the Covered Transactions.
d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:
i. enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section 482 consistent
with this APA;
ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006–9; or
iii. revise this APA, if the Parties agree.
e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix
C and section 11.01 of Revenue Procedure 2006–9. Taxpayer must file the Annual Report for all APA Years through the APA Year
ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert month
and day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual Report shall
be due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary
to clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days. Additional time
may be allowed for good cause.
f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, the Financial Statements,
and other APA Records, for the APA Term and any other year necessary to verify compliance. For Taxpayer to comply with this
APA, {use the following or an alternative} an independent certified public accountant must render an opinion that Taxpayer’s Financial Statements present fairly, in
all material respects, Taxpayer’s financial position under U.S. GAAP.
g. In accordance with section 11.04 of Revenue Procedure 2006–9, Taxpayer will (1) maintain the APA Records, and (2) make
them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes
compliance with the record-maintenance provisions of I.R.C. sections 6038A and 6038C for the Covered Transactions for any
taxable year during the APA Term.
h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an
affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.
i. {Optional for US Parent Signatories} To the extent that Taxpayer’s compliance with this APA depends on certain acts of Foreign Group members, Taxpayer will ensure
that each Foreign Group member will perform such acts.
6. Critical Assumptions. This APA’s critical assumptions, within the meaning of Revenue Procedure 2006–9, section 4.05, appear in Appendix B. If any
critical assumption has not been met, then Revenue Procedure 2006–9, section 11.06, governs.
7. Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return information”
under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C. section
6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public
disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that
does not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.
8. Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the Director of the
Advance Pricing and Mutual Agreement Program, to the extent reasonably practicable, before seeking alternative remedies.
9. Materiality. In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material facts”
in Revenue Procedure 2006–9, section 11.06(4).
10. Section Captions. This APA’s section captions, which appear in italics, are for convenience and reference only. The captions do not affect in any way the interpretation or application of this
11. Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D contains definitions for
capitalized terms not elsewhere defined in this APA.
12. Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever, delete, or reform any invalid or unenforceable
provision in this APA to approximate the Parties’ intent as nearly as possible.
13. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to Taxpayer.
14. Notice. Any notices required by this APA or Revenue Procedure 2006–9 must be in writing. Taxpayer will send notices to the IRS at
the address and in the manner set forth in Revenue Procedure 2006–9, section 4.11. The IRS will send notices to:
Taxpayer Corporation
Attn: Jane Doe, Sr. Vice President (Taxes)
1000 Any Road
Any City, USA 10000
(phone: _________)
15. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties execute this APA. The Parties
may execute this APA in counterparts, with each counterpart constituting an original.
The Parties have executed this APA on the dates below.
[Taxpayer Name in all caps]
By:	___________________________	Date: ___________________, 201___
Sr. Vice President (Taxes)
COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)
1. Covered Transactions.
[Define the Covered Transactions.]
2. APA Term.
This APA applies to Taxpayer’s taxable years ending __________ through ________ (APA Term).
3. TPM.
{Note: If appropriate, adapt language from the following examples.}
[The Tested Party is __________.]
• CUP Method
The TPM is the comparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for _________ is between
_______ and ___________ per unit.
• CUT Method
The TPM is the CUT Method. The Arm’s Length Range of the royalty charged for the license of ______is between ____% and ___
% of [Taxpayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net sales revenue
or other royalty base.]
• Resale Price Method (RPM)
The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as follows: the Tested
Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations sections 1.482–5(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between ____% and ___ %, and the Median of the Arm’s Length Range is
___%.
• Cost Plus Method
The TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the Tested Party’s
ratio of gross profit to production costs (as those terms are defined in Treasury Regulations sections 1.482–3(d)(1) and (2))
for that APA Year. The Arm’s Length Range is between ___% and ___%, and the Median of the Arm’s Length Range is ___%.
• CPM with Berry Ratio PLI
The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s Berry Ratio
is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses (as those terms
are defined in Treasury Regulations sections 1.482–5(d)(2) and (3)) for that APA Year. The Arm’s Length Range is between ____
and ___, and the Median of the Arm’s Length Range is ___.
• CPM using an Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s Operating
Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales revenue (as those
terms are defined in Treasury Regulations section 1.482–5(d)(1) and (4)) for that APA Year. The Arm’s Length Range is between
____% and ___ %, and the Median of the Arm’s Length Range is ___%.
• CPM using a Three-year Rolling Average Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s Three-Year
Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Party’s operating profit (within
the meaning of Treasury Regulation section 1.482–5(d)(4) for that APA Year and the two preceding years, divided by the sum
of its sales revenue (within the meaning of Treasury Regulation section 1.482–5(d)(1)) for that APA Year and the two preceding
years. The Arm’s Length Range is between ____% and ____%, and the Median of the Arm’s Length Range is ___%.
• Residual Profit Split Method
The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual profit-split mechanism].
[Insert additional provisions as needed.]
4. Application of TPM.
For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin
for the Tested Party] within the Arm’s Length Range, then the amounts reported on Taxpayer’s U.S. Return must clearly reflect
For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] outside
the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect an adjustment that brings the
[price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year
Rolling Average Operating Margin] to the Median.
For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s
and Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with the following adjustments:
(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be treated
as an operating expense]; and
(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such
results shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.
5. APA Revenue Procedure Treatment
If Taxpayer makes an adjustment under paragraph 4 of this Appendix A (a “primary adjustment”), Taxpayer and its related foreign
entity may elect APA Revenue Procedure Treatment in accordance with section 11.02(3) of Revenue Procedure 2006–9 and avoid
the possible adverse tax consequences of a secondary adjustment that would otherwise follow the primary adjustment.
This APA’s critical assumptions are:
1. The business activities, functions performed, risks assumed, assets employed, and financial and tax accounting methods
and classifications [and methods of estimation] of Taxpayer in relation to the Covered Transactions will remain materially
the same as described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.
APA RECORDS AND ANNUAL REPORT
The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes,
work papers, records, or other writings that support the information provided in such documents.
The Annual Report (and each of the four copies required by paragraph 5(e) of this APA) will include:
1. Two copies of a properly completed APA Annual Report Summary in the form of Appendix E to this APA, one copy of the form
bound with, and one copy provided separately from, the rest of the Annual Report.
2. A table of contents, organized as follows:
3. Statements that fully identify, describe, analyze, and explain:
a. All material differences between the U.S. Group’s business operations (including functions, risks assumed, markets, contractual
terms, economic conditions, property, services, and assets employed) during the APA Year from the business operations described
in the APA Request. If there have been no material differences, the Annual Report will include a statement to that effect.
b. All material differences between the U.S. Group’s accounting methods and classifications, and methods of estimation used
during the APA Year, from those described or used in the APA Request. If any change was made to conform to changes in U.S.
GAAP (or other relevant accounting standards) Taxpayer will specifically identify the change. If there has been no material
change in accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that
c. Any change to the Taxpayer notice information in paragraph 14 of this APA.
d. Any failure to meet any critical assumption. If there has been no failure, the Annual Report will include a statement to
e. Whether or not material information submitted while the APA Request was pending is discovered to be false, incorrect, or
f. Any change to any entity classification for federal income tax purposes (including any change that causes an entity to
be disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions
or is otherwise relevant to the TPM.
g. The amount, reason for, and financial analysis of (1) any primary adjustments made under Appendix A for the APA Year; and
(2) any (a) secondary adjustments that follow such primary adjustments or (b) accounts receivable that Taxpayer establishes, in lieu of secondary adjustments, by electing APA Revenue Procedure Treatment
pursuant to paragraph 5 of Appendix A and Revenue Procedure 2006–9, section 11.02(3), for the APA Year, including but not
i. the amounts due or owed, and paid or received by each affected entity;
ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the specific
affected line item(s) of any affected U.S. Return;
iii. the date(s) and means by which the payments are or will be made; and
iv. whether or not APA Revenue Procedure was elected pursuant to paragraph 5 of Appendix A and Revenue Procedure 2006–9, section
11.02(3).
h. The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the APA
Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. Return for the APA Year.
i. Whether Taxpayer contemplates requesting, or has requested, to renew, modify, or cancel the APA.
4. The Financial Statements, and any necessary account detail to show compliance with the TPM, including consolidating financial
statements, segmented financial data, records from the general ledger, or similar information if the assets, liabilities,
income, or expenses relevant to showing compliance with the TPM are a subset of the assets, liabilities, income, or expenses
presented in the Financial Statements.
5. {Use the following or the alternative prescribed by paragraph 5(f) of this APA:} A copy of the independent certified public accountant’s opinion required by paragraph 5(f) of this APA.
6. A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and
reference the information required under item 4 above in sufficient account detail to allow the IRS to determine whether Taxpayer
has complied with the TPM.
7. An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities
that are parties to the Covered Transactions or are otherwise relevant to the TPM.
8. A copy of the APA and any amendment.
9. A penalty of perjury statement, executed in accordance with Revenue Procedure 2006–9, section 11.01(6) and (7).
The following definitions control for all purposes of this APA. The definitions appear alphabetically below:
A report within the meaning of Revenue Procedure 2006–9, section 11.01.
This Advance Pricing Agreement, which is an “advance pricing agreement” within the meaning of Revenue Procedure 2006–9, section
2.04.
The records specified in Appendix C.
APA Request
Taxpayer’s request for this APA dated _________, including any amendments or supplemental or additional information thereto.
APA Year
This term is defined in paragraph 5(a) of this APA.
Covered Transaction(s)
This term is defined in Appendix A.
Financial statements prepared in accordance with U.S. GAAP and stated in U.S. dollars.
Foreign Group
Worldwide Group members that are not U.S. persons.
Foreign Participants
[name the foreign entities involved in Covered Transactions].
The Internal Revenue Code of 1986, 26 U.S.C., as amended.
Pub. L. 106–170
The Ticket to Work and Work Incentives Improvement Act of 1999.
Revenue Procedure 2006–9
Rev. Proc. 2006–9, 2006–1 C.B. 278.
Transfer Pricing Method (TPM)
A transfer pricing method within the meaning of Treasury Regulation section 1.482–1(b) and Revenue Procedure 2006–9, section
U.S. GAAP
U.S. generally-accepted accounting principles.
U.S. Group
Worldwide Group members that are U.S. persons.
U.S. Return
For each taxable year, the “returns with respect to income taxes under subtitle A” that Taxpayer must “make” in accordance
with I.R.C. section 6012. {Or substitute for partnership: For each taxable year, the “return” that Taxpayer must “make” in accordance with I.R.C. section 6031.}
Taxpayer and all organizations, trades, businesses, entities, or branches (whether or not incorporated, organized in the United
States, or affiliated) owned or controlled directly or indirectly by the same interests.
APA ANNUAL REPORT SUMMARY FORM
The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader supplies some of the information
requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the form as part of
its Annual Report.
Department of the Treasury—Internal Revenue Service
APA No. _______________
Large Business and International Division
Team Leader ____________________________
Transfer Pricing Operations
Economist _______________________________
Advance Pricing and Mutual Agreement Program
Intl Examiner _____________________________
APA Information
Taxpayer Name: ___________________________________________________
Taxpayer EIN:_________________ NAICS:___________________
APA Term: Taxable years ending ________ to ____________
Original APA [ ] Renewal APA [ ]
Annual Report due dates:
_________________, 201__ for all APA Years through APA Year ending in 200__; for each APA Year
thereafter, on _________________ [month and day] immediately following the close of the APA Year
Principal foreign country(ies) involved in covered transaction(s): _______________________________________
Type of APA: [ ] unilateral [ ] bilateral with ________________
Tested party is [ ] US [ ] foreign [ ] both
Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods and services:
[ ] N/A [ ] <$50 million [ ] $50–100 million [ ] $100–250 million [ ] $250–500 million [ ] >$500 million
APA tests on (check all that apply):
[ ] annual basis [ ] multi-year basis [ ] term basis
APA provides (check all that apply) a:
[ ] range [ ] point [ ] floor only [ ] ceiling only [ ] other_____________
APA provides for adjustment (check all that apply) to:
[ ] nearest edge [ ] median [ ] other point
APA date executed: ______________, 201__
This APA Annual Report Summary is for APA Year(s) ending in 200__ and was filed on _____________, 201__
(to be completed
Check here [ ] if Annual Report was filed after original due date but in accordance with extension.
by the Taxpayer)
Has this APA been amended or changed? [ ] yes [ ] no Effective Date: ______________________
Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no
Were all the critical assumptions met? [ ] yes [ ] no
Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual Report?
[ ] yes [ ] no If yes, which year(s): 200___
Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no
Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no
Any change to the entity classification of a party to the APA? [ ] yes [ ] no
Taxpayer notice information contained in the APA remains unchanged? [ ] yes [ ] no
Taxpayer’s current US principal place of business: (City, State) _____________________________________
Financial analysis reflecting TPM calculations
Checklist of
Financial statements showing compliance with TPM(s)
Schedule M–1 or M–3 book-tax differences
Current organizational chart of relevant portion of world-wide group
Attach copy of APA
Other APA records and documents included:
Phone Number Affiliation and Address
APMA LEADERSHIP
Dhawale, Hareesh
202-515-4306
Deputy Director – Operations (Acting)
Francis, Tennille
202-515-4389
Deputy Director – Technical
McComber, Donna
202-515-4341
Kwiat, Russell
202-515-4309
Larson, Chuck
312-292-3663
Lee, Ho Jin
213-833-1166
AUSTRALIA, AUSTRIA, GERMANY, JAPAN, KAZAKHSTAN, NETHERLANDS, NEW ZEALAND, RUSSIA & UKRAINE
Cohen, Judith
202-515-4312
CHINA, INDONESIA, JAPAN, SOUTH AFRICA & THAILAND
415-547-3776
CANADA, ITALY & LUXEMBOURG
Mader, Burton
202-515-4319
DENMARK, INDIA, IRELAND, NORWAY, SWEDEN, SWITZERLAND & UK
202-515-4307
ARGENTINA, CANADA, CARIBBEAN, JAMAICA, MEXICO, PORTUGAL, PUERTO RICO, SPAIN & VENEZUELA
Spring, Gregory
202-515-4340
BELGIUM, CANADA, FRANCE, GREECE, HUNGARY, POLAND, ROMANIA & TURKEY
Fouts, Patricia
202-515-4740
GUAM, JAPAN, KOREA, MOROCCO & PHILIPPINES
Bracken, Dennis
310-414-3617
[3] APAs finalized or renewed are the same as APAs executed.
[4] Not all APAs executed in 2014 involved a tested party.
[5] See Treas. Reg. § 1.482–5(b)(4)(ii)(A).
[6] See Treas. Reg. § 1.482–5(b)(4)(ii)(B).
[7] See Treas. Reg. § 1.482–9(b).
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