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

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2024

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 & bottom lb ros

More from across our site

ITR’s most interesting stories of the year covered ‘landmark’ legal battles, pillar two, AI’s relationship with transfer pricing and more
Chinwe Odimba-Chapman was announced as Michael Bates’ successor; in other news, a report has found a high level of BEPS compliance among OECD jurisdictions
The tool, which will automatically compute amount B returns, requires “only minimal data inputs”, according to the OECD
The rules are intended to implement the substance of an earlier OECD report in its entirety
While new technology won’t replace the human touch, it could help relieve companies’ staffing issues, EY’s David Helmer and Daren Campbell tell ITR
The firm said the financial growth came from increased demand for its AI services and global tax reform advice
Chrystia Freeland had also been the figurehead of Canada’s controversial digital services tax adoption, which stoked economic tensions with the US
Panama has no official position on pillar two so far and a move to implement in Costa Rica will face rejection, experts tell ITR
The KPMG partner tells ITR about Sri Lanka’s complex and evolving tax landscape, setting legal precedents through client work, and his vision for the future of tax
Overall turnover at the firm also reached a record £8 billion; in other news, Ashurst and Dentons announced senior tax partner hires
Gift this article