KPMG report: APAs and COVID-19

KPMG report: APAs and COVID-19

Taxpayers need to consider how to respond to advance pricing agreement (APA) challenges that flow from the coronavirus (COVID-19) pandemic.


Related content

An APA is essentially a long-term contract between a tax authority and a taxpayer, the key feature of which is agreement that the tax authority will not disturb the taxpayer’s transfer prices as long as the taxpayer follows an agreed method for setting those prices. Since the advent of the OECD’s base erosion and profit-shifting (BEPS) project, many taxpayers have turned to APAs to manage the uncertainty of the evolving international tax landscape.

In 2018 and 2019 combined, the IRS Advance Pricing and Mutual Agreement (APMA) program received 324 APA requests and completed 227 APAs. The U.S. program is more popular than ever, a phenomenon that extends to APA programs in many countries around the world.

The length of an APA contract can vary. In the United States, the average length of APA contracts concluded in 2018 and 2019 was 6.4 years, but APAs covering periods of seven, eight, or 10 years are common.

For many APAs in effect or under negotiation, a tension exists between achieving long-term transfer pricing certainty and the need to accommodate unexpected economic disruptions such as the conditions many companies are now facing from the impact of COVID-19.

A long APA term can help taxpayers manage transfer pricing risk but can pose a problem if attached to an APA that has static pricing targets without a mechanism to adjust those targets in the event of a change to taxpayer-specific or macroeconomic conditions.

Read a May 2020 report* [PDF 890 KB] prepared by KPMG LLP

*This report originally appeared in Tax Notes Federal (25 May 2020) and is provided with permission of the publisher.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal