US Outbound: New updates to CAP focus on transfer pricing issue resolution

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Outbound: New updates to CAP focus on transfer pricing issue resolution

Sponsored by

sponsored-firms-kpmg.png

On August 27 2018, the Internal Revenue Service (IRS) announced changes to the compliance assurance process (CAP) for future years. CAP is an IRS programme that allows select taxpayers to participate in advance resolution of issues with IRS personnel prior to filing their returns.

The programme began with 17 participants in 2005, and has grown to 169 in 2018.

The IRS announced in 2016 that new participants would not be accepted into the CAP, leaving the future of the programme uncertain. The 2018 news release, however, indicated that the IRS intends to maintain and expand the CAP. Doug O'Donnell, commissioner of the IRS's large business and international division, stated that "after extensive review, we believe this programme continues to provide benefit for taxpayers and tax administration". While applications for 2019 are restricted to current CAP taxpayers, the IRS announced that the programme would reopen to new participants in the future.

The changes, which are effective for the 2019 application season, require taxpayers applying for the CAP to provide the IRS with a preliminary list of material issues and, if applicable, specified transfer pricing and research credit information. Additionally, under the new procedures, taxpayers may be required to resolve certain transfer pricing issues using an advance pricing agreement (APA). Generally, the CAP procedures move quickly, since their duration is limited by the return filing date, and the recent news release announces a 90-day goal for issue resolution in the CAP. The requirement that some issues be resolved through APAs rather than the CAP seems to reflect the IRS's understanding that complex transfer pricing issues may not be suited to the timeframe and procedures of the CAP, and instead require more deliberate consideration by subject matter experts in the APA process.

Importantly, the requirement that APAs be used for certain issues also suggests that the IRS does not believe difficult transfer pricing issues should preclude taxpayers from participating in the CAP. Rather, it seems to contemplate a coordinated approach under which some transfer pricing issues may be severed from the normal CAP and addressed in a parallel, albeit longer, APA procedure. This should help the IRS reach its 90-day issue resolution goal for the CAP, while also opening the door to bilateral resolution of significant transfer pricing issues through the APA process. Since bilateral resolutions are not available in the CAP, this is a significant benefit to taxpayers.

more across site & shared bottom lb ros

More from across our site

Shiny new offices like Ryan’s in London Bridge aren’t just a cost – they signal that a firm is willing to align with its clients’ interests
Darren Graves will succeed Richard Houston, who is set to lead Deloitte EMEA; in other news, Morgan Lewis hired a three-partner tax team in New York
India also signed its first-ever bilateral APAs with France, Ireland, Indonesia and Sweden last year, the CBDT revealed
Chile’s revamped GAAR marks a shift toward structural scrutiny, pushing MNEs to strengthen tax governance, economic substance and compliance strategies
New reforms represent the most seismic shift in Canadian TP legislation since its enactment and a clear inflection point for MNEs, ITR has heard
Spain did not transpose EU VAT rules for SMEs or works of art; in other news, an increased VAT threshold came into force in South Africa
While the IBS incorporates taxable events previously covered by state and municipal taxes, its governance and operational logic represent a significant departure from the legacy model
The new office on the fourth floor of 4 More London will span 14,230 square feet, with the potential to expand to the first and second floors
MNEs now face a shift from modelling to execution as the side‑by‑side deal forces tax teams to upgrade systems, harmonise data, and prevent costly pillar two mismatches
As recent surveys suggest a disconnect between AI adoption and employee engagement, the big four risk digging themselves into a strategic hole
Gift this article