The Commissioner of the IRS Large Business and International Division (LB&I) on February 19 issued a memorandum for employees of LB&I, entitled "Interim Guidance on Mandatory Issue Team Consultations with APMA for Examination of Transfer Pricing Issues Involving Treaty Countries." The memorandum requires LB&I Issue Teams that examine transfer pricing issues that could generate adjustments involving a treaty partner to consult with the Advance Pricing and Mutual Agreement (APMA) office.
The memo applies to LB&I Issue Teams that are examining LB&I taxpayers (those with assets equal to or greater than $10 million) that must file Forms 5471 or 5472 with their federal income tax returns. Under this new procedure, the LB&I Issue Teams must collaborate with the APMA office with respect to transfer pricing issues under audit. The consultation will address procedural and substantive matters, including whether a taxpayer's intercompany transactions are in line with the arm's-length standard. The apparent goal of this mandatory consultation procedure is to ensure that transfer pricing adjustments proposed or asserted by IRS examination teams that are likely to be subject to the competent authority proceedings under a tax treaty are based on well-grounded and principled positions that APMA is willing to advocate to treaty partners.