APAs may cover transfer prices for transactions with all related parties, including transfers of intangible assets and assets, intercompany services, CSAs and financial transactions, including guarantees and income allocation of a financial institution involved in the global trading of financial instruments. In addition to traditional transfer pricing issues, ASAs may also cover some other tax issues for which compensation principles may be relevant, as well as incidental issues. As noted in our previous LawFlash, many states are focusing their efforts on enforcing taxes on transfer pricing issues to increase their tax bases, and growing budget deficits due to the coronavirus pandemic (COVID-19) have only reinforced states` focus on intercompany transactions.  Little is known about how IDOR intends to implement its APA program, but an important problem is obvious: Indiana`s program provides only unilateral APAs. Because of the strength of the international tax treaty, taxpayers often have the option of requesting bilateral or multilateral APAs for their international transactions, which is necessary to ensure true “security” for intercompany transactions in each relevant geography (both parts of the transaction) and avoid double taxation.  Such a bilateral or multilateral option does not exist at the national level. Without ensuring that other states (which also wish to expand their own tax bases through transfer pricing adjustments) will meet the results of transfer pricing agreed between one taxpayer and Indiana, taxpayers will not be sure that the results of their intercompany transactions will not be audited, adjusted and doubly taxed by other states.  A pre-price agreement (APA) is a prior agreement between a tax payer and a tax authority on an appropriate transfer pricing method (TPM) for a number of transactions (“covered transactions”). How long does it usually take to obtain a unilateral APA and a bilateral APA? Following the pre-nomination meeting, the APP application is formalized and submitted for review. The formal application should not be difficult or binding when the pre-application phase is complete and the company has good documentation on transfer pricing. Annual compliance reports for unilateral APAs must be forwarded: a Pre-Pricing Agreement (APA) is an agreement between tax authorities and taxpayers on the future implementation of transfer pricing policies.
An APA can be an effective measure to reduce transfer pricing risks for many tax payers, ensuring that the level of future profitability is accepted as appropriate by the tax authorities. However, it is possible that a subject may be able to negotiate a unilateral APA involving only the taxpayer and the IRS. In this case, both parties negotiate an appropriate TPM only for U.S. tax purposes. If the taxpayer is involved in a dispute with a foreign tax authority over the registered transactions, he can apply for a discharge by asking the competent US authority to initiate a procedure of mutual agreement. This, of course, implies the entry into force of an applicable foreign income tax agreement. Unilateral APAs take the form of a binding decision.