WASHINGTON, Dec 17 (Reuters) - The U.S. Internal Revenue Service is making progress this year on minimizing quarrels with multinational corporations over “transfer pricing,” or taxing how companies value and move capital and assets across borders, a senior IRS official told Reuters.
The agency has signed 115 advance pricing agreements (APAs) with multinationals so far in 2013. That could climb to 130 by year-end, nearly matching 2012’s record-setting total of 140, Richard McAlonan, APA program director, said on Monday.
With an APA, a company voluntarily locks in how much it will pay the IRS over five years for its transfer pricing practices, giving certainty to both the company and IRS.
Some companies do not like the APA program because it means providing a lot of tax information to the IRS, tax lawyers said.
Frequently, bilateral APAs are signed between the United States, a multinational and another country.
Transfer pricing disputes are common and consume a lot of time and resources for the IRS and fir large corporations. Within the legal and accounting industries, a lucrative sub-sector of transfer-pricing specialists has emerged.
APAs are designed to head off disagreements by stipulating ahead of time what the IRS will and will not allow. The APA program started in 1991. Earlier this year, companies including Chrysler Group LLC and Nike Inc said they were negotiating APAs with the IRS, regulatory filings showed.
Before 2012, the IRS had never completed more than 85 APAs in a year. In 2011, the tally fell to 46. The pace of APA deals has since accelerated, but some businesses shy away from the process due to its cost and time demands, tax lawyers said.
In a sign of possible trouble ahead for the program, the number of new APA applications is 105 so far this year, McAlonan said. The program had 126 applications in 2012. “Applications are coming a little bit lighter than I would like,” he said.
APAs signed this year took an average of 36 months to complete, he said, down from an average of 41 months last year.
Businesses like bilateral APAs because they offer tax certainty in two countries. The IRS has competed 83 of these this year, mostly involving Japan and Canada, McAlonan said.
The large number of APAs closed in 2013 is a positive sign that companies see the program as worth the investment, said Eric Ryan, a transfer pricing tax lawyer at DLA Piper.
Still, the biggest flaw is that “the time frame is stubbornly stuck around three years” to complete an APA, he said.