Transfer Pricing: Competent Authority Consideration , discusses the considerations that a taxpayer should take into account in requesting competent authority assistance, negotiation of the competent authority agreement, the taxpayer's strategy, and finalization of the agreement. It also examines the costs and benefits of seeking a competent authority agreement.

Competent authority relief is particularly relevant to transfer pricing practice, as most competent authority cases involve §482 allocations. The Portfolio analyzes the legal restrictions and the procedural requirements of the competent authority process based on the mutual agreement procedure of the applicable treaty. The Portfolio also guides the taxpayer through the competent authority process by identifying situations where relief can be sought, deconstructing the relief request process, and recommending actions to maximize the likelihood that relief would be granted.

Given that, under the mutual agreement procedures of most U.S. income tax treaties, the competent authorities need only “endeavor” to relieve double taxation, and that competent authority negotiations occur without any direct taxpayer involvement, detailed knowledge of the competent authority process is essential. This Portfolio explains the ways in which the taxpayer, despite not being directly involved in negotiations, may influence the development of the U.S. Competent Authority negotiating position. The Portfolio also discusses bilateral competent authority negotiations arising from both U.S.-initiated and foreign-initiated transfer pricing adjustments.

The Portfolio concludes with a discussion of the costs and benefits of competent authority agreements. Such costs and benefits could be direct, as with interest on tax deficiencies, refunds, and penalties, or indirect, as with conforming adjustments and deemed loan treatment.

This Portfolio is part of the Premier International Tax Library, a comprehensive series containing more than 100 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource library offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in Italy, Business Operations in Puerto Rico, Branch Profits Tax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

Detailed Analysis

 I. Introduction

 II. Treaty Basis for Competent Authority Relief

 A. General

 B. U.S. Mutual Agreement Procedure Articles

 C. OECD Mutual Agreement Procedure Article and Commentary

 III. U.S. Implementation of the Competent Authority Procedure

 A. Identity of the Competent Authority

 B. Structure of the U.S. Competent Authority Office

 C. Other Roles of the Competent Authority Process

 D. Advance Pricing Agreements and the Role of Competent Authority

 IV. Procedures for Requesting Competent Authority Assistance

 Introductory Material

 A. Filing of a Request by the Taxpayer

 B. Time for Filing and Other Basic Requirements

 C. Information Required in Request

 D. User Fees

 E. Pre-Filing and Other Conferences

 F. Acceptance of Requests for Assistance

 G. Small Case Procedure

 V. Limitations on Applicability and Availability of Competent Authority Relief

 Introductory Material

 A. Applicability of Tax Treaty

 B. Failure of Tax Treaty to Address Certain Cases of Double Taxation

 C. Differences in Perspectives of Treaty Countries

 D. Jurisdictional Limits to National Taxes

 E. Eligibility for Requesting Assistance

 F. Expiration of Statute of Limitations

 G. U.S. Discretion to Accept a Request for Assistance

 H. Other Grounds for Denial

 I. Failure of Competent Authorities to Agree

 J. Effect of Agreements or Settlements on Competent Authority Proceedings

 VI. Considerations in Requesting Competent Authority Assistance

 Introductory Material

 A. Necessity

 1. Availability of Foreign Tax Credit

 2. Relief from Foreign-Initiated Transfer Pricing Adjustments

 3. Tax-Free Repatriation

 B. Issues to Consider in Requesting Competent Authority Assistance

 1. Possibility of Further Audits or New Issues Being Raised in Subject Years

 2. Possibility of Audit in Future Years

 3. Confidentiality of the Competent Authority Process

 4. Waiver of Attorney-Client Privilege

 C. Probability of Success

 1. Obtaining Full or Partial Relief

 2. Relief Statistics

 3. The Negotiating Environment

 VII. Negotiation of the Agreement Between the Competent Authorities

 A. Role of the Taxpayer

 1. No Direct Taxpayer Participation

 2. Active Indirect Taxpayer Participation

 3. Inherent Tensions in the Process

 B. Role of the U.S. Competent Authority

 C. Development of U.S. Negotiating Position

 1. Position Papers and Subsequent Negotiation

 2. Consistency with Other Cases and with Competent Authority and APA Precedents

 3. Role of OECD Guidelines

 D. Schedule and Length of Process

 E. Arbitration Alternative

 VIII. Competent Authority Process in U.S.-Initiated Transfer Pricing Cases

 Introductory Material

 A. Importance of Consulting the Foreign Competent Authority

 B. Paths to Competent Authority

 1. Competent Authority Follows Appeals Consideration

 2. Bypassing Appeals

 3. Simultaneous Appeals Procedure

 4. Coordination with Litigation

 5. Rollback of APA

 6. Granting of Unilateral Relief by the United States

 C. Importance of Creating a Record

 D. Shaping the IRS Negotiating Position

 E. Providing Additional Information

 F. Multi-Cycle Competent Authority Consideration

 IX. Competent Authority Process in Foreign-Initiated Transfer Pricing Cases

 Introductory Material

 A. Importance of Consulting the U.S. Competent Authority

 B. Paths to Competent Authority and Other Considerations

 C. Filing a Protective Claim for Refund

 X. Finalization of Competent Authority Agreement

 A. Notification of Agreement Between Competent Authorities

 B. Decision of the Taxpayer Whether to Accept the Agreement

 C. Form 870 or Form 870-AD and Closing Agreements

 D. Enforceability in Foreign Country

 XI. Direct Costs and Benefits of a Competent Authority Agreement

 A. Income Taxes

 B. Interest on Tax Deficiencies and Refunds

 C. Penalties

 D. Foreign Exchange Gain and Loss

 XII. Indirect Costs and Benefits of a Competent Authority Agreement

 A. Conforming Adjustments

 B. Rev. Proc. 99-32 Relief

 C. Deduction of Interest on Tax Liability

 D. Taxation of Foreign Exchange Gain or Loss

 Working Papers

 Table of Worksheets

 Worksheet 1 Rev. Proc. 2006-54, 2006-49 I.R.B. 1035, 12/4/2006 (procedure for requests for U.S. Competent Authority assistance filed after December 4, 2006)

 Worksheet 2 Example of Net Effect of Competent Authority Settlements

 Worksheet 3 Hypothetical U.S.-German Competent Authority Settlement

 Bibliography

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 Statutes:

 Treasury Rulings

 Cases:

 UNOFFICIAL

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