The IRS is increasing the fee it charges multinational business taxpayers for a unilateral or bilateral advance pricing agreement (APA).
APAs are agreements that companies strike with the IRS to resolve potential transfer pricing disputes ahead of time. With an agreement on the prospective tax treatment of international commerce between related parties, the taxpayer gets greater certainty about its U.S. tax liability.
The increase will take effect in two-stages:
- For APA requests filed after June 30, 2018, the fees will increase to $86,750 for new APAs, $48,500 for renewal APAs, $42,000 for small case APAs, and $17,750 for amendments to APAs.
- For APA requests filed after December 31, 2018, the fees will increase to $113,500 for new APAs, $62,000 for renewal APAs, $54,000 for small case APAs, and $23,000 for amendments.
Federal law and policy requires agencies, including the IRS, to charge a fee to recoup the cost of providing certain services to the public that confer special benefit to the recipients. In addition, the Internal Revenue Code authorizes or requires the IRS to charge user fees for other specified services. Generally, a user fee reimburses the IRS for the cost of providing the service.
Periodically, federal agencies must review their user fees to determine whether they are recovering the full cost of providing relevant services and to determine if there are additional services for which the agencies should charge user fees.
The last time APA fees were adjusted was in 2015 in the appendix of Revenue Procedure 2015-41. Apart from the changes above, the agency stated that the fees in the appendix remain unchanged. Those fees are:
- $60,000 for each APA request, except as otherwise specified,
- $35,000 for each request to renew an APA that does not propose a substantial expansion of the APA’s scope or a substantial change in the covered method(s) (other than updating of the results under the covered method(s)), provided that the pertinent facts remain substantially the same, unless such renewal is eligible for the small case APA user fee,
- $30,000 for each APA request eligible for the small case APA user fee, and
- $12,500 for each amendment to a current unilateral, bilateral or multilateral APA.
If multiple APA requests are filed by the same controlled group within a 60-day period, the maximum total fee charged will be $60,000, plus $30,000 for each foreign competent authority involved (if any) beyond the first two.
Small Case APAs
An APA request is eligible for the small case APA user fee only if the following apply:
- The controlled group has sales revenues of less than $500 million in each of its most recent three back years,
- The aggregate value of the proposed covered issue(s) isn’t expected to exceed $50 million in any given year of the proposed APA years,
- The aggregate value of any transfer of rights in, or rights to use, intangibles isn’t expected to exceed $10 million in any given year of the proposed APA years, and
- No proposed covered issue involves intangible property arising from, or otherwise related to, an intangible development arrangement.
For a no-obligation discussion on the possible impact and steps you should take now, contact Lien Le, the head of our International Tax practice.