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 2025

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

The new guidance is not meant to reflect a substantial change to UK law, but the requirement that tax advice is ‘likely to be correct’ imposes unrealistic expectations
Taylor Wessing, whose most recent UK revenues were at £283.7m, would become part of a £1.23bn firm post combination
China and a clutch of EU nations have voiced dissent after Estonia shot down the US side-by-side deal; in other news, HMRC has awarded companies contracts to help close the tax gap
An EY survey of almost 2,000 tax leaders also found that only 49% of respondents feel ‘highly prepared’ to manage an anticipated surge of disputes
The international tax, audit and assurance firm recorded a 4% year-on-year increase in overall turnover to hit $11bn
Awards
View the official winners of the 2025 Social Impact EMEA Awards
CIT as a proportion of total tax revenue varied considerably across OECD countries, the report also found, with France at 6% and Ireland at 21.5%
Erdem & Erdem’s tax partner tells ITR about female leader inspirations, keeping ahead of the curve, and what makes tax cool
ITR presents the 50 most influential people in tax from 2025, with world leaders, in-house award winners, activists and others making the cut
Cormann is OECD secretary-general
Gift this article