COVID-19 and APAs: APMA Signals Flexible Case-by-Case Approach to Address Special 2020 Transfer Pricing Challenges in APAs
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.
The informal guidance—titled “Competent Authority Filing Modifications and APMA APA Consultations”—announced procedural and substantive actions that the APMA Program is taking. First, consistent with earlier IRS general guidance, APMA confirmed that it will accept electronic-only filings of Advance Pricing Agreement (“APA”) and Mutual Agreement Procedure (“MAP”) requests with scanned or digital signatures. Second and more significantly, the informal guidance announced that APMA is actively considering special transfer pricing issues arising in connection with the COVID-19 crisis impacting the 2020 tax year and will accept questions and meeting requests from taxpayers to discuss such issues on a case-specific basis. Taxpayers with impacted executed APAs covering 2020 as a tax year are instructed to contact the appropriate APMA Assistant Director with any such questions or meeting requests, while taxpayers with still-pending APAs are instructed to contact the Team Leader assigned to their case. Taxpayers are invited to submit background information, as well as any specific requests or proposals, at least two weeks before any scheduled meeting. The informal guidance also notes that APMA is already actively engaged in bilateral discussions with treaty partners on such special 2020 issues, encompassing “technical issues as the application of transfer pricing methods in periods of economic distress and the impacts of current economic conditions on specific industries, types of taxpayer, regions, etc.”
Although the informal guidance does not directly address how the APMA Program might specifically approach and accommodate the unforeseen and unprecedented conditions impacting the 2020 tax year in APAs, it nevertheless signals the APMA Program’s continued willingness to work with taxpayers and treaty partners to resolve difficult transfer pricing issues in a cooperative and principled manner. If anything, the lack of specifics is consistent with the APMA Program’s flexibility to consider the special circumstances of each taxpayer and transaction on a case-by-case basis, as well as the practical reality that different treaty partners may have different perspectives on how to address the special transfer pricing issues arising in 2020.
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