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Abstract
The US Advance Pricing Agreement (APA) program has recently celebrated its 5th anniversary. The program was conceived as an alternative to comprehensive examinations followed by protracted litigation for resolving transfer pricing issues. Both taxpayers and the IRS had high hopes for the APA program when it was first announced. After 5 years, the program has scored some solid successes, particularly in the area of global trading. An APA is essentially a contract with the IRS which sets forth a methodology for evaluating whether transfer prices are arms length and will, therefore, be respected by the IRS. The heart of the APA request is the proposed transfer pricing method. This is the method the taxpayer proposes to determine arm's length pricing consistent with the requirements of Sec. 482 of the IRC. The chief benefits to an APA are greater certainty with respect to transfer prices and virtual elimination of the Sec. 6662 penalty.