PwC Examines Proposed Changes to Competent Authority, APA Procedures

PricewaterhouseCoopers LLP respectfully submits for your consideration the attached comments on Notice 2013-78 (Proposed Revision of Procedures for Requesting Competent Authority Assistance Under Tax Treaties). Please contact Richard F Barrett, Principal, at (202) 414-1480, or J. Bradford Anwyll, Principal, at (202) 414-4326, with any questions.

Introduction

As an introductory matter, PwC commends the IRS for its continued commitment to the Competent Authority process and welcomes the IRS's efforts to provide more guidance on the information to be submitted in a request for U.S. Competent Authority assistance under the Mutual Agreement Procedure ("MAP") articles of various U.S. tax treaties. These efforts are especially timely in light of the recent formation of the Advance Pricing and Mutual Agreement ("APMA") Program and the ensuing merger of the Competent Authority and Advance Pricing Agreement ("APA") functions.

The success of the Competent Authority program is evident both on a statistical and anecdotal level. Statistics published by the IRS in March 2013 indicate that the time to close cases has fallen steadily over the past three years. In addition, relief from double taxation was achieved in 96 percent of the cases resolved in 2012. Further, PwC has experienced a welcome improvement in the processing and resolution of the Competent Authority cases that it regularly submits on behalf of its clients. These efficiencies are an undeniably important aspect of helping taxpayers arrive at certain and swift resolutions to their transfer pricing and treaty issues. No matter the size or complexity of the taxpayer or transaction, the Competent Authority process has proven to be an invaluable means for multinational entities ("MNEs") to engage with governments in a collaborative process that is designed to relieve double taxation.

In light of these positive developments, PwC would like to take the opportunity to express some concerns raised by the Proposed Revision of Procedures for Requesting Competent Authority Assistance Under Tax Treaties contained in Notice 2013-78¹ ("the Notice") that may serve to reverse the positive trends that recently have been observed in the APMA Program. In the interest of PwC's clients that wish to enter the Competent Authority program, it is recommended that the IRS reconsider its proposed procedures regarding the following topics:

Mandatory roll forward and increased scope of MAP cases

Under the current revenue procedure, Rev. Proc. 2006-54, a taxpayer may request a roll forward of a MAP resolution through the Accelerated Competent Authority Procedure ("ACAP") to subsequent tax years for which returns have been filed. Further, the IRS field office with jurisdiction over the matter must consent to ACAP.

Under the proposed guidance, the U.S. Competent Authority may expand the scope of MAP cases without consent from taxpayers or the IRS field office. Section 2.08 of the proposed revenue procedure stales that the scope of MAP cases will be expanded in the interest of "resolving all potential MAP issues in a timely manner." Accordingly, the U.S. Competent Authority would be empowered to "initiate a MAP case in the absence of a MAP request" by the taxpayer and "require that the scope of a MAP case be expanded." Id. In addition to including ACAP years, the scope of MAP cases under the proposed revenue procedure could be expanded to include additional treaty countries or additional MAP issues.

The proposed revenue procedure does not explicitly state under what mechanism taxpayers will be required to expand the scope of their MAP cases. Presumably, the U.S. Competent Authority would condition continuation of the MAP process on the taxpayer agreeing to the expanded scope, although this is not made clear in the proposed guidance.

Under the various tax treaties between the United States and other countries, the right to seek Competent Authority relief under the MAP article generally is granted to taxpayers. For example, under Art. 1 of the OECD Model Tax Convention (which is generally consistent with the provisions of the various U.S. tax treaties), the parties covered by such tax treaties are "persons who are residents of one or both Contracting States." Such a "person" is given the right to "present his case" to the Competent Authorities. Art. 25 § 1. The Competent Authorities, in turn, "shall endeavour . . . to resolve the case by mutual agreement. . . ." Id. § 2 If the IRS were to condition acceptance of a MAP case on the taxpayer's expansion of its request to include additional years, countries, or issues, such a limitation would impede a taxpayer's right to request Competent Authority assistance for matters "[w]here a person considers" that the actions of one of the treaty countries would results in taxation not in accordance with the treaty. Such carte blanche authority to expand cases beyond taxpayers' interests could deter taxpayers from seeking Competent Authority assistance.

Recommendations

The proposed guidance should not provide the IRS with the implicit authority to unreasonably minimize the role of a taxpayer's interests in the MAP process, As a result, PwC recommends that the proposed guidance be modified to clarify under what circumstances the IRS might seek to expand a case to include more countries, years, or issues, so that a taxpayer can make an informed decision about whether to request Competent Authority assistance.

Increased information requirements in requests for MAP assistance

Section 1.03 of the proposed guidance would require diagrams "similar to" covered issue diagrams required for APA requests by the proposed APA revenue procedure.² According to the proposed APA revenue procedure, the covered issue diagrams must illustrate the legal structure, tax structure, business unit structure, intercompany flows, and value chain of the controlled group. The covered issue diagrams also would have to include organization charts identifying executive-level functional or occupational roles within the business units of the covered group, including names of individuals occupying these positions and headcounts for the business units. The covered issue diagrams would include diagrams, charts, or other representations presented in no less detail than that presented by the Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (JCX-37-10), July 20, 2010.

Recommendations

It is unclear whether all of the covered issued diagrams also proposed for APA purposes would be required for MAP purposes. The proposed revenue procedure's use of "similar to" leaves a degree of uncertainty in this respect. PwC recommends that the IRS modify the proposed guidance to state explicitly what is required in a MAP request.

In addition, the. term "covered issue diagram" appears to be a misnomer in that the diagrams requested are not solely focused on the controlled transaction that is the subject of the MAP request, but include, among other items, the legal structure, tax structure business unit structure, intercompany flows, and supply chain of the controlled group and proposed covered transaction. The focus thus seems to have shifted from information relevant to pricing specific transactions between related parties to information regarding the global supply chain of an MNE. PwC believes that this is an overly broad approach to achieve double tax relief. It also may be counterproductive from APMA's perspective because it would not be unusual for a foreign tax authority's determination of pricing for a specific transaction to be influenced by the recognition that there is significant arm's length "system profit" elsewhere in an MNE. Accordingly, PwC recommends permitting taxpayers to omit such detail from their submissions. Instead, PwC believes that only information relevant to the transaction being evaluated need be disclosed. If, after reviewing the taxpayer's submission, the IRS believes further information is required, the IRS always has the ability to request that this additional information be provided.

Expanded role of Competent Authority in other administrative proceedings

Under Section 9.01 of Notice, the role of the U.S. Competent Authority would be expanded in other administrative proceedings, including examinations and the fast track settlement process. In the ease of examination resolutions, the U.S. Competent Authority would accept a U.S.-initiated adjustment memorialized in an examination resolution only if the U.S. Competent Authority had agreed in writing to the terms of the resolution prior to its execution. Once the U.S. Competent Authority receives notification of the resolution, it will determine whether it accepts the proposed terms. If it disagrees with the terms, the U.S. Competent Authority will request that the IRS Examination team and the taxpayer amend the terms accordingly. For fast track settlements, the U.S. Competent Authority will accept an issue memorialized in a fast track session report into MAP only if a representative of the U.S. Competent Authority was named as a "participant" in the fast track proceedings and the representative was given a reasonable opportunity to participate in all fast track proceedings.

Recommendations

These changes would dramatically expand the role of the U.S. Competent Authority in other administrative proceedings and place additional burdens on taxpayers. Traditionally, the examination function of the IRS is handled by the Examination division ("Exam"). Examination resolutions are thus solely within Exam's purview. Mandating that taxpayers be responsible for getting APMA's approval for resolutions made during the examination process appears to insert APMA into Exam's role, which minimizes APMA's ability to bring a fresh and objective perspective to a case.

In addition, such a requirement places the burden on the wrong party, Whatever interests the IRS has in ensuring that its various divisions coordinate appropriately are better served by implementing controls and processes within the IRS that foster more internal collaboration. As a result, PwC recommends that the proposed guidance be modified to encourage taxpayers to inform APMA of examination resolutions without making this a requirement for MAP assistance.

Conclusion

PwC appreciates the opportunity to be part of the dialogue aimed at improving the effectiveness and efficiency of the Competent Authority process. Although PwC believes that the proposed revenue procedure makes significant strides in aligning the interests of both taxpayers and APMA during the Competent Authority process, there is room for further improvement. PwC looks forward to working with APMA to continue to collaborate on the new approach to the Competent Authority process as the program continues to move forward and make significant progress.

PricewaterhouseCoopers LLP ("PwC") respectfully submits for your consideration its comments on Proposed Revenue Procedure 2013-79. Please contact Richard F. Barrett, Principal, at (202) 414-1480, or Gregory J. Ossi, Principal, at (202) 414-1409 with any questions.

² Notice 2013-79, 2013-50 I.R.B. 653.

Executive Summary

As an introductory matter, PwC commends the IRS for its continued commitment to the Advance Pricing Agreement ("APA") process and welcomes the IRS's effort to provide more guidance to taxpayers on this important issue resolution program. These efforts are especially timely in light of the recent formation of the Advance Pricing and Mutual Agreement Program ("APMA") and the ensuing merger of the competent authority and APA functions. Further, PwC supports the progress made by the IRS in streamlining operations to accelerate and improve the APA process.

The resulting efficiencies in the processing of APAs are evident both on a statistical and anecdotal level. As evidenced by the most recent Announcement and Report Concerning Advance Pricing Agreements,¹ APMA reported 140 completed APAs during 2012, a marked improvement from the 42 APAs completed in 2011. Further, PwC has experienced a welcome improvement in the processing and resolution of the APA requests that it regularly submits on behalf of its clients. These efficiencies are an undeniably important aspect of helping taxpayers arrive at certain and swift resolutions to their transfer pricing issues, which range from simple inbound transactions to complex intangible valuation issues. No matter the size or complexity of the taxpayer or transaction, APAs have proven to be an invaluable means for multinational enterprises ("MNEs") to engage with governments in a transparent process that is designed to provide certainty with respect to the arm's length pricing of intercompany transactions.

In light of these positive developments, PwC would like to take the opportunity to express some concerns about certain provisions in the Proposed Revision of Procedures for Advance Pricing Agreements contained in Notice 2013-79² ("the Notice") that may serve to reverse the positive trends that have recently been observed in the APMA program. To ensure that the APA process is an effective and efficient issue resolution program, it is recommended that the IRS reconsider its proposed procedures regarding the following topics:

We note that the Notice will amend Rev. Proc. 2006-9, which currently provides guidance on the APA process for taxpayers. The current APA process allows a taxpayer to request a rollback of an APA transfer pricing method to resolve a transfer pricing issue in a prior year. The taxpayer may make a rollback request at any time during the AFA process. Importantly, the decision whether to grant such a rollback generally rests with the IRS examination function.⁶

Consistent with current guidance, the Notice encourages a taxpayer to expand the scope of its APA request to include an APA rollback "when a comprehensive resolution of coverable issues would further the interests of sound tax administration."⁷ However, the Notice goes further to state that "APMA may also condition its acceptance of an APA request upon the taxpayer's agreement to roll back . . . where APMA has clear interests in doing so and the taxpayer does not offer clear reasons against doing so."⁸

PwC understands that the APMA program currently has no authority (nor delegated authority) to conduct an income tax examination of a taxpayer. It is not obvious what source provides APMA the authority to assume such responsibility in the absence of any legislative or regulatory delegation of such authority. Further, the Notice blurs the distinct roles and responsibilities of the APA process, which generally is aimed at addressing transfer pricing issues on a prospective basis, and the examination function, which generally is retrospective in its nature. PwC is concerned that the conflated responsibilities of APMA and the examination functions would result in different viewpoints that may disrupt the efficiency of both the APA and examination processes.

PwC notes that there is significant ambiguity with regard to what should constitute "clear interests" and "clear reasons" on the part of APMA and the taxpayer, respectively. We are concerned that these undefined terms may grant APMA excessive discretion to conduct an examination of non-APA tax years and effectively propose tax adjustments when established practice and procedures required to perform an IRS examination have not been followed.

Finally, giving (only) the IRS the authority to condition acceptance of an APA request upon the taxpayer's agreement to roll hack to prior years seems fundamentally unfair. The obvious danger that exists is that APMA will only make such rollback requests when it results in more tax being paid for those prior years. The APA process has many benefits to both the IRS and taxpayers, including prevention of disputes and litigation. Such a change may thus be counterproductive from the IRS's perspective, as it may well result in increased transfer pricing disputes which the IRS may not have the resources to address.⁹ We believe that the historical practice of taxpayers requesting rollbacks and examination addressing the rollback years has worked well, and we are not aware of any compelling reason for the IRS to propose this change to its rollback policy.

Extended Scope of Issues and Depth of Information Required

PwC believes that the covered transaction and information requirements within Rev. Proc. 2006-9 embody the voluntary nature of the APA process. Specifically, taxpayers are able to select the pricing methods they determine are most appropriate and support their positions accordingly. For example, the current guidance requires that taxpayers provide detailed financial information, an explanation of the proposed transfer pricing methodologies, and detailed legal and operational descriptions of the taxpayers' businesses.¹⁰ PwC understands that APMA sometimes insists on a wider scope in an APA when it finds it necessary to allow for a more detailed analysis of a covered transaction. However, with respect to the scope of issues and information required from taxpayers, the guidance proposed in the Notice extends well beyond that of the current guidance or what has historically been required by the IRS in connection with its over 1,000 executed APAs.

PwC observes that the Notice encourages taxpayers to expand the scope of proposed APAs to include "[relevant] coverable issues," and that "APMA may also condition its acceptance of an APA request upon the taxpayer's agreement to include such other issues among the covered issues. . . ."¹¹ Further, the Notice expands the information to be included within APA submissions significantly with the inclusion of worldwide gross revenue of the controlled group and "covered issue diagrams." The "covered issue diagrams" would include diagrams, charts, or other representations presented in no less detail than that presented by the Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (JCX-37-10), July 20, 2010.

Notwithstanding the increased scope and information requirements, there are mutual benefits that inure to both taxpayers and the IRS as a result of the voluntary APA process. Taxpayers that participate in the program gain certainty in their treatment of particular transactions and are able to manage tax audits more effectively. Correspondingly, the IRS benefits from taxpayers' participation in the program by assisting the IRS to streamline audits of transfer pricing issues. Such mutual benefits would be eroded to the extent taxpayers are driven away from the option of requesting APAs due to the increased burden of having to address the transfer pricing throughout an entire supply chain. The increases in scope and information requests appear to generate resource burdens that would reduce taxpayer willingness to engage in the APA process for issues that may have little or no relevance to the controlled transactions being evaluated.

As such, PwC is concerned with APMA's scope expansion in requesting support of "coverable issues" (as opposed to "covered transactions") and calling for additional information requirements with respect to the APA submission process. PwC's concerns include:

PwC is unclear as to the scope increase proposed by the IRS regarding the definition of "coverable issues." PwC observes that "coverable issues" include "ancillary issues and any other issues for which transfer pricing principles may be relevant to their resolution by APMA."¹² In the context of many taxpayers, issues that may be construed as ancillary or potentially relevant are voluminous. Consequently, such open-ended information would be time-consuming and burdensome for taxpayers to assess, compile, and review. Further, PwC anticipates such information would be overly burdensome and inefficient for APMA and the examination teams to subsequently review as part of their processing of the APA request.

There is also the issue of relevance, as "covered issue diagrams" appears to be a misnomer, in that the diagrams requested are not solely focused on the controlled transaction that is the subject of the APA, but include, among other items, the legal structure, tax structure business unit structure, intercompany flows, and supply chain of the controlled group and proposed covered transaction. The focus thus seems In have shifted from information relevant to pricing specific transactions between related parties to information regarding the global supply chain of a MNE. We believe that is inappropriate. It may also oftentimes be counterproductive from APMA's perspective, as it would not be unusual for a foreign tax authority's determination of pricing for a specific transaction to be influenced by the recognition that there is significant arm's length "system profit" elsewhere in a multinational controlled group.

Indeed, APMA often uses its discretion in regard to requested information to ensure that bilateral negotiations remain focused on the evaluation of the covered transaction. Removing this discretion and imposing an inflexible mandatory requirement to disclose broad information covering an MNE's entire supply chain is unnecessary. Under existing standards, APMA already has the authority to insist on such information when it is deemed relevant to the APA under consideration. If this language is retained in the revenue procedure, there will be an expectation that this information should be a prerequisite to the IRS evaluating the APA. This part of the process, however, has traditionally been a part of the due diligence that the agency is required to conduct once the APA has already been accepted for evaluation. Creating this blanket prerequisite based on information that can easily be requested can further exacerbate administrative burdens for both the taxpayers and the IRS.

Effect on resources for taxpayers and the IRS

The additional scope and information reporting requirements also would increase the resources required of taxpayers seeking an APA. For many taxpayers, it would be necessary to perform additional functional analyses and studies to identify and document all relevant "coverable issues." The detailed mapping of taxpayers' legal structure, tax structure, business unit structure, intercompany flows, and the supply chain of the controlled group and proposed covered group required as part of the "covered issue diagrams" would also require significant resources for many taxpayers to generate. Again, the IRS already has the power to request any relevant information regarding the covered transactions as necessary and needed. Therefore, it would be in the best interests of administrative efficiency for APMA to request information as it becomes relevant, thereby adopting a more holistic approach, rather than requiring all possibly relevant information as a prerequisite.

Effect of APA filing information on non-transfer pricing issues

PwC recommends reevaluating whether a display of covered issues in such a broad manner at the outset of a voluntary process is necessary or furthers the sound administration of the historic policies of the APMA program encouraging taxpayer transparency and cooperation. By requiring taxpayers to identify every possible issue related to its supply chain, the proposed procedure gives the appearance that APMA is not focusing on the specific transactions at issue and instead may seek to investigate parts of the supply chain that have no direct relevance to the U.S. transaction under review. These forays into areas not related to the covered transactions of the APA will only serve to increase the administrative inefficiencies of obtaining an APA both from the standpoint of the taxpayer and the IRS. In a world of limited tax department and IRS budgets, finding ways to streamline the process without jeopardizing compliance should be encouraged.

Recommendations

With respect to the concerns noted above, PwC recommends the IRS provide further detailed guidance regarding what constitutes a "coverable issue," Further clarification will assist in providing more relevant information generated in the APA process, and it will also aid in mitigating inefficiencies for both taxpayers and the IRS.

To mitigate the risk of reduced participation in the AFA program while also addressing the IRS's effort to function most efficiently in processing APAs, PwC recommends that the IRS consider making adjustments to information disclosure requirements in contexts apart from the Notice and the APA process. PwC observes that uniform standards for such disclosure requirements are being addressed on a global basis in the context of other initiatives (e.g., the recently released OECD Discussion Draft on Transfer Pricing Documentation and Country-by-Country Reporting). PwC would recommend that caution be exercised with regard to imposing disclosure requirements that may be duplicative of future requirements that may result from the implementation of final global uniform standards in other contexts (e.g., § 6662 transfer pricing documentation).

Further, PwC suggests that the proposed scope expansion and information requirements may not be relevant to all fact patterns subject to APAs. Accordingly, PwC recommends permitting taxpayers to omit such detail from their submissions. For example, assuming a fact pattern involving an inbound MNE where the U.S. company serves as a low-risk distributor (and is the less complex entity between two related parties), PwC does not believe there is there a need for the supply chain of a MNE to be compiled, documented, illustrated, and disclosed. Instead, PwC believes that only information relevant to the transaction being evaluated should be disclosed. If, after reviewing the taxpayer's submission, the IRS believes further information is required in its review, the IRS always has the ability to request this additional information be provided,

APAs and § 6662 Documentation

The Notice proposes a revenue procedure that would substantially restate the existing revenue procedure that governs APAs, Rev. Proc. 2006-9. The current revenue procedure does not provide any guidance to taxpayers with respect to whether undertaking the APA process with the IRS would mitigate the need for taxpayers to create transfer pricing documentation in accordance with Treas. Reg. § 1.6662-6(d)(2)(iii). The proposed revenue procedure makes a tentative first step towards providing such guidance. Specifically, section 3.08 of the proposed revenue procedure states that a completed APA request will be "a factor taken into account in determining whether the taxpayer has met the documentation requirements of Treas. Reg. § 1.6662-6(d)(2)(iii)." This language in the proposed revenue procedure, however, does not go far enough toward providing any concrete guidance to taxpayers or the IRS.

The IRS and taxpayers willingly undertake the APA process because it is mutually beneficial. It provides a collaborative venue for resolving disputes before they arise and providing certainty to all parties. Although the IRS has worked to improve and support the APA process (e.g., reducing case processing time and hiring additional resources), the APA process still is a long one that requires significant investments of resources by taxpayers. Preparing or updating annual transfer pricing documentation likewise involves the outlay of significant resources.

To require taxpayers to continue to prepare annual transfer pricing documentation during a multi-year APA negotiation process is a wasteful, belts-and-suspenders approach toward achieving the same ends -- a reduction in the risks associated with transfer pricing adjustments. This duplication of efforts creates a deadweight investment solely for the purpose of administrative procedure.

The IRS, according to the proposed revenue procedure, makes an affirmative decision whether to accept an APA request into the program.¹³ As a result, the IRS voluntarily undertakes an initial review of an APA request to determine whether it meets the relevant standards for completeness, The IRS also controls what those standards for completeness are. Further, the requirements for an APA are at least as rigorous as the requirements for documentation. Accordingly, satisfying the requirements for submitting an APA is equivalent to satisfying the requirements needed to avoid penalty protection under the documentation requirements of Treas. Reg. § 1.6662-6(d)(2)(iii).

Recommendations

Given the IRS's role as the arbiter of the sufficiency of an APA request, the IRS appears to be uniquely situated to determine whether a taxpayer has made a reasonable effort to provide the IRS with an APA submission that is robust enough to also meet the standards of Treas. Reg. § 1.6662-6(d)(2)(iii). Because the information required to file a substantially complete APA submission generally is consistent with the requirements under Treas. Reg. § 1.6662-6(d)(2)(iii), this additional review would be of little additional burden on the IRS. Once accepted into the APA program for having filed a submission that is in compliance with the APA Revenue Procedure, taxpayers should be deemed to be in compliance with Treas Reg. § 1.6662-6(d)(2)(iii) while the matter is under the jurisdiction of the APMA office or until such time that either the taxpayer or IRS formally withdraws from the process and no further documentation studies are required for the covered transactions. Once an APA is entered into, the APA annual report provisions of the APA should establish the annual compliance requirements of the taxpayer to satisfy Treas. Reg. § 1.6662-6(d)(a)(iii).

At a minimum, the Notice should go further to provide taxpayers with guidance regarding how to address the inefficient duplication of efforts inherent in the status quo. The proposed revenue procedure, by noting that an APA request is only a "factor" in determining whether the relevant documentation requirements have been met, does not give taxpayers any useful information on which to make decisions. Not only is the weight and character of this factor never defined, the mere mention of one factor implies the existence of others, which are also undefined. Taxpayers and the IRS would benefit from clearer guidance and a process that reduces overall taxpayer compliance burdens, especially the duplicative provision of information that adds little or nothing to overall tax administration.

Anonymous Pre-Filings

The IRS has long permitted taxpayers to discuss potential APAs with the Service on a no-name basis. This cloak of anonymity encourages taxpayers to speak openly with the IRS without fear of triggering an IRS audit. While all advice in these meetings is informal and non-binding, taxpayers otherwise reluctant to enter into the APA process are able to speak openly with the IRS to gain insight into whether an APA is an appropriate means to address potential transfer pricing disputes. Further, taxpayers may be able to gather additional information regarding the shape the APA process may take in regard to their case before ultimately deciding whether to participate in the process. In this way, the ability of taxpayers to participate in pre-filing conferences on an anonymous basis allows for otherwise hesitant taxpayers to more deeply explore the possibility of pursuing an APA.

Under the Notice, anonymous pre-filings will not be allowed where the potential APA request involves certain circumstances, including intangible development arrangements, global trading arrangements, and entities disregarded for U.S. tax purposes. Given that pre-filings generally take place before the taxpayer has committed to the APA process and that all advice given by the IRS is oral and non-binding, it is unclear why anonymous pre-filings would not be allowed in all circumstances. The purpose of the pro-filing meeting is to allow the taxpayer to gather further information regarding the APA process before committing to it. Hesitant taxpayers should not be discouraged from seeking this information, regardless of the circumstances of their case. Indeed, it is arguable that taxpayers with sensitive issues (in the IRS's view) should be all the more encouraged to seek resolution of these issues on a prospective basis by participating in the APA process.

There is no obvious benefit to the Service in prohibiting anonymous pre-filing conferences for certain categories of transactions or circumstances. Indeed, the only effect of such a rule will be to exile from the APA process those taxpayers who are "on the fence" about committing to the process, but who nonetheless may have eventually entered and successfully completed an APA. We do not believe that would be a prudent course of action and recommend that the final revenue procedure continue the salutary practice of allowing for anonymous pre-filing conferences in all circumstances.

Extension of statute of limitations

Under both current guidance and the Notice, taxpayers are generally required to extend (he statute of limitations to include all years covered by an APA request, including rollback years. Although taxpayers often are willing to grant their consent as part of the APA process, a great preference exists among taxpayers for restricted consents, which keep the relevant years open only for the same matters being addressed by APMA. It is PwC's view that restricted consents should be employed more frequently, placing a lesser burden on taxpayers while also meeting the practical needs of the IRS.

PwC believes that IRS examination managers are reluctant to execute restricted extensions due to a lack of standardized procedures for when restricted consents should be executed. We encourage specific guidance be placed in a final APMA notice that encourages the use of restricted consents where the only issue preventing final closure of the tax year is the covered transaction of the APA. In addition, we recommend that IRS counsel draft standardized language that can be used in these situations to aid in the standardization of the process.

Additionally, the IRS may consider including a provision recognizing that, on a case by ease basis, APA rollback or MAP requests involving years that are closed may be considered in appropriate circumstances. Such a provision would recognize that an open statute of limitations need not always be a necessary prerequisite for MAP or APA rollback. For example, a taxpayer with a net operating loss carryover still faces the possibility of a Service-initiated transfer pricing adjustment that results in double taxation even if the statute of limitations for the year of the operating loss is technically closed. Such a taxpayer should not be automatically barred from receiving relief through an APA rollback. Moreover, where the statute of limitations remains open in a foreign jurisdiction, a taxpayer should be able to seek an APA and rollback that covers all years subject to potential adjustment in the foreign country, even if the U.S. statute of limitations for the rollback years is closed. The interests of sound tax administration would not be furthered by waiting until a foreign adjustment is actually initiated before those years are considered. Such a provision, we believe, would be consistent with the Service's current practice.

Conclusion

PwC appreciates the opportunity to contribute to the dialogue aimed at improving the effectiveness and efficiency of the APA process. There are significant issues raised in the proposed Notice that create the potential for unnecessary duplication with regard to the expanded scope of information that the proposed revenue procedure requires. Further, there are issues raised relating to the authority APMA may exercise in certain key areas of examination administration that PwC recommends resolving prior to finalizing the proposed procedure, so that taxpayers can have clarity on how the complex infrastructure of their global supply chains result in arm's length intercompany transfer pricing policies. We look forward to working with the IRS to continue to enhance the success that the new APMA Program has demonstrated.

² 2013-50 I.R.B. 653.

³ 2006-1 C.B. 278.

⁴ 2008-1 C.B. 1133.

⁵ Rev. Proc. 2006-9, § 4.01.

[Editor note: Footnote 5 missing in the text]

⁶Id., § 8.02.

⁷ Notice 2013-79, § 2.02(3).

⁸Id.

⁹See, e.g., Sheppard, News Analysis: BEPS Implementation Anticipated, 2014 TNT 41-3 (Mar. 3, 2014) (noting comments of Samuel Maruca, Director of Transfer Pricing Operations, IRS Large Business and International Division, that the IRS is currently so understaffed and unlikely to get more resources in the near future that it may have to drop otherwise worthwhile audits).

¹⁰ Rev. Proc. 2006-9, § 4.03.

¹¹ Notice 2013-79, § 2.02(5).

¹²Id., § 1.

¹³See, e.g., Notice 2013-79 § 4.02(3) ("APMA's decision as to whether an APA request is complete . . . is not subject to administrative review.") and § 2.02(e) ("APMA may also condition its acceptance of an APA request upon. . . .").