The US competent authority can boast a long track record of success in resolving disputes in mutual agreement procedures (MAPs) and pre-empting them through advance pricing agreements (APAs). As such, it is perhaps not surprising that US taxpayers have, for decades, had insight into the functioning of MAPs and APAs in the US via Internal Revenue Service (IRS) statistics. Prior to BEPS Action 14, that was unusual: in much of the world, MAPs were something of a black box, with little accountability for jurisdictions disinclined to negotiate double tax cases.
That has all changed. The OECD now collects and publishes MAP statistics from over 130 jurisdictions, representing a total inventory of around 6,000 cases as of the close of 2022. The exact number cannot be pinpointed due to the presence of double-counting in the cases that pre-date 2016, when a common reporting framework came into effect. And those statistics show that in much of the world, MAPs are highly effective.
Case closures
Of those roughly 6,000 cases, 658 involve the US – and 440 of them are transfer pricing cases. The US competent authority’s handling of its caseload therefore has significant ramifications for the global MAP inventory, and at first glance it might seem troubling that in 2022 the number of US MAP cases closed fell to almost half (254) of the prior year’s resolutions (490), the lowest level since 2018 (251). Yet context is key: the levels of cases closed in 2021 and in 2020 (357) were the highest on record, a feat that was all the more remarkable in the midst of the COVID pandemic.
Viewed in light of IRS officials’ public comments concerning the APA statistics, it appears that the relatively low number of MAP case closures for 2022 likely has a simple explanation: the pandemic allowed the US competent authority and its partners to focus on resolving simpler cases, leaving thornier or newer, less factually developed cases in the inventory for 2022.
Such cases are naturally more difficult to resolve, and this also means slightly longer timeframes: about 31 months on average for post-2015 transfer pricing cases, well over the aspirational 24-month timeframe established by Action 14. The US competent authority fared better with non-transfer pricing cases begun after 2015, with an average timeframe of just over 22 months to resolution. The 31-month figure for transfer pricing cases at first appears to be an increase over processing times reported for prior years, but seems to be in line with historical results after accounting for the timeframes for pre-2016 cases.
MAP outcomes
The outcomes of US transfer pricing cases resolved in 2022 also hold a surprise that, on closer inspection, is not quite so surprising. Historically, the number of such cases with an unsuccessful resolution in MAPs was very low; for instance, five cases in 2021, less than 2% of all US transfer pricing MAP cases for that year. In 2022, the number of unsuccessful transfer pricing cases leapt to 23, almost 18% of transfer pricing cases closed.
Of the 23, 13 are tagged as US–India cases, and all, or almost all, of the seven pre-2016 cases (that are not tagged to a treaty partner due to differences in the statistical reporting) also appear to relate to India. This does not mean that the US–India competent authority relationship no longer works; it does, as the healthy number of MAPs and APAs between the countries can attest. The spike in unsuccessful cases seems instead to relate to an advertising, marketing, and promotion expense issue that resulted in MAP cases being held in abeyance pending Indian litigation on the substantive issue.
When removing those cases, the US only had three unsuccessful transfer pricing cases in 2022, compared to 74 that resulted in full success via a MAP and two that resulted in partial success. This count excludes a further 19 cases that were resolved via domestic remedy in 2022, as that category reflects resolutions in processes outside the MAP process.
Ongoing success
What the statistics show, when read with the proper context, is that MAP cases involving the US remain highly successful, even though they take longer than Action 14’s 24-month goal. Continued investment in US competent authority resources will be critical to matching and improving upon these results in the future.
The information in this article is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 because the content is issued for general informational purposes only. The information contained in this article is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the author or authors only, and does not necessarily represent the views or professional advice of KPMG LLP, the US member firm.
