US IRS issues annual APA report for 2021

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EY Global

8 Apr 2022
Subject Tax Alert
Jurisdictions United States

Executive summary

The United States (US) Internal Revenue Service (IRS) Advance Pricing and Mutual Agreement (APMA) Program issued the 23rd annual Advance Pricing Agreement (APA) report (the Report) on 22 March 2022, in Announcement 2022-7 (pdf). The Report discusses APMA, including its activities and structure for calendar year 2021, and gives useful insights into the operation of the APA Program.

The number of APA filings increased in 2021, with taxpayers filing 145 APA requests (up from 121 in 2020). The total number of APAs concluded, however, decreased from 127 to 124 and the median of time to finalize an APA increased from 32.7 months in 2020 to 35.1 months in 2021.

  • During 2021, 145 APA applications were filed and 124 APAs were executed. APMA received more APAs than it closed in 2021. The number of APAs completed during 2021 is generally consistent with the number of APAs completed during the last several years. Additionally, there has been a continued interest in bilateral APAs filed with Japan (33%), India (16%) and Canada (10%), representing 59% of all US bilateral APAs filed.
  • At year end, 461 APA requests were pending (395 bilateral, 27 multilateral and 39 unilateral), up from 448 in 2020.
  • The median time required to complete an APA increased from 32.7 months in 2020 to 35.1 months in 2021.
  • Overall APMA headcount increased to 118 professionals (including the Director) as of 31 December 2021 (from 98 at the end of 2020).
  • Details are provided on the treaty partners to bilateral APAs concluded during the year. APAs with Japan (40%), Germany (20%) and Canada (7%) comprised approximately 67% of all US bilateral APAs executed in 2021.
  • Unilateral APA requests increased from 15 in 2020 to 16 in 2021.
  • The number of applications withdrawn in 2021 decreased from 7 in 2020 to 6 in 2021.
  • Approximately 61% of the APAs executed in 2021 were completed for transactions between foreign parented companies and their US subsidiaries, while 25% were completed with transactions between US parent companies and their foreign subsidiaries.1
  • Among the transfers of tangible or intangible property using the Comparable Profits Method/Transactional Net Margin Method (CPM/TNMM), the operating margin (OM) was once again the profit level indicator (PLI) most commonly applied, being used in 65% of cases.
  • The CPM/TNMM was applied in 85% of the APAs with intercompany service transactions. The most commonly selected PLI with the CPM/TNMM with the OM and operating profit to operating expense being the most common PLIs used 65% of the time.

Detailed discussion

APA applications, executed APAs and pending APAs

Since the APA Program's inception in 1991 through 31 December 2021, the IRS has received a total of 2,936 APA applications and executed 2,191 APAs. The following table reports summary statistics about 2021 APA applications, executed APAs and pending APAs. Data are reported separately for unilateral and bilateral APAs, and completion times for 2021, 2020 and 2019 are compared.

  Unilateral Bilateral Total*
Year 2021 2020 2019 2021 2020 2019 2021 2020 2019
APA applications 16 15 17 121 103 96 145 121 121
APAs executed 25 19 29 98 105 91 124 127 120
Renewals executed 19 11 20 59 64 48 78 75 68
Pending requests for APAs 39 43 46 395 384 386 461 448 454
Pending requests for renewals 26 25 28 147 154 158 185 187 186
APAs canceled or revoked 0 0 0 0 0 0 0 0 0
APAs withdrawn 1 2 1 4 5 11 6 7 12

* In some cases, the totals include additional multilateral cases

IRS staffing changes and operating efficiencies

The total number of APMA employees increased during 2021. The number of economists increased in 2021 (25) compared to 2020 (21), and the number of team leaders (a mix of lawyers and accountants) also increased significantly in 2021 (80) from 2020 (64). There were nine managers and three assistant directors in 2021. Each assistant director supervised three managers who lead teams comprised of both team leaders and economists. The IRS APMA contacts are listed here.

Months to complete APAs

The following data indicate that the average time to completion for new bilateral APAs increased from 50.8 months in 2020 to 52.3 months in 2021. The average time to completion for new unilateral APAs decreased significantly from 36.2 months in 2020 to 24.5 months in 2021.

Treaty partners in bilateral APAs

As shown in the following chart, APAs with Japan represent more bilateral APAs than any other country at 40% of bilateral APAs executed in 2021. This is attributable to the maturity of the APA Programs in the United States and Japan and the negotiating experience of the APMA team and the competent authority team representing the National Tax Administration of Japan.

Canada is the third most frequently involved treaty partner in executed APAs in 2021 at 7%, as a result of its role as the third largest trading partner with the US (following China and Mexico) and the fact that it has been a US tax treaty partner for almost 80 years.

In addition, the number of India APA requests filed continues to increase steadily, in part as a result of the improved relationship between the IRS and India's tax authorities during the last several years. In 2021, India represented 16% of bilateral APAs filed, 22% of pending bilateral APAs and 5% of executed bilateral APAs (second only to Japan in all three categories). This constitutes an extremely positive outcome given the uncertainty and risk of double taxation faced by multinationals investing in India.

Bilateral APAs filed per country 20212
Japan 33%
India 16%
Canada 10%
Itay 7%
Germany  5%
Korea 4%
United Kingdom 3%
Mexico 3%
China 3%
All other countries 16%
Bilateral APAs executed by country 2021
Japan 40%
Germany 20%
Canada 7%
Korea 6%
India 5%
China 3%
Italy 3%
Netherlands 3%
Switzerland 4%
All other countries 9%
Industries covered

As shown in the following table, manufacturing and wholesale/retail trade continue to comprise the largest share of APA cases, representing 75% of all APAs completed in 2021.

Industry representation

APAs executed in 2021 by industry

Wholesale/Retail trade 38%
Manufacturing 37%
Services 14%
Management 6%
Finance, Insurance and Real Estate 3%
All other industries 2%

Approximately 70% of manufacturing cases involved computer and electronic products, chemicals and transportation equipment, while the wholesale/retail trade cases were dominated by wholesalers of durable goods (62%).


Type of Manufacturing APAs executed in 2021

Transportation Equipment 37%
Chemical 22%
Computer and Electronic Products 11%
Miscellaneous 9%
Machinery 6%
All other manufacturing 15%
Wholesale/retail trade

Type of Wholesale/Retail Trade APAs executed in 2021

Merchant Wholesalers, Durable Goods 62%
Merchant Wholesalers, Nondurable Goods 19%
Motor Vehicle and Part Dealers 8%
All other wholesalers 11%
Covered transactions and tested parties

The Report describes, in overall terms, the covered transactions and sets out the types of tested parties in each transaction. Note that one APA may cover more than one transaction.

Covered transactions
Sale of Tangible Property into the US 29%
Sale of Tangible Property from the US 16%
Provision of Services by a US Entity 21%
Provision of Services by a Non-US Entity 17%
Use of Intangible Property by a US Entity 10%
Use of Intangible Property by a Non-US Entity 6%
All other types of transactions 1%
Types of tested parties
US Distributor 45%
Non-US Distributor 13%
US Service Provider 9%
Non-US Service Provider 9%
US Manufacturer 23%
All other types of tested parties 1%
Transfer pricing methods applied

The CPM/TNMM continues to be the most commonly applied method (65%) in cases involving transfers of tangible and intangible property, as well as for services transactions.

Critical assumptions

A critical assumption is a fact on which the taxpayer's TPM depends. APAs typically list critical assumptions that involve a particular mode of conducting business operations, a particular corporate or business structure, or a range of expected business volume.

The model APA used by the IRS includes a standard critical assumption that there will be no material changes to the taxpayer's business or to its tax or financial accounting practices during the APA term, and all the APAs executed in 2021 included that standard critical assumption.

A few bilateral cases have included critical assumptions tied to either the taxpayer's profitability in a certain year or over the term of the APA, or to the amount of non-covered transactions as a percentage of the taxpayer's revenue.

If a critical assumption has not been met, and the parties cannot agree on how to revise the APA, the APA can be canceled. The IRS did not cancel any APAs in 2021 due to the failure of a critical assumption (or any other reason).


The APA Program's results contained in the Report for 2021 includes the following:

  • APMA executed 124 APAs.

  • The median time to complete a bilateral APA rose from 50.8 months in 2020 to 52.3 months in 2021.

  • The median time to complete a unilateral APA dropped significantly from 36.2 months in 2020 to 24.5 months in 2021.

  • The large drop in the median time to complete a unilateral APA drove down the median time to complete an APA (bilateral and unilateral) to 32.7 months, compared to 35.1 months in 2020, 38.8 months in 2019 and 40.2 months in 2018.

APMA added 20 transfer pricing professionals to its ranks; in addition to its Director, APMA now has 80 team leaders, 25 economists, 9 managers and 3 assistant directors — a total of 118 transfer pricing professionals. The addition of new people may be behind the slower processing times for bilateral APAs.

The upward trend of requests for multilateral APAs continued as the number of multilateral APAs pending in 2021 increased to 27 from 21 in 2020. More taxpayers appear to be looking to multilateral APAs to resolve the multijurisdictional transfer pricing issues wrought by their supply chains. EY also has experience in several cases where APMA or the foreign taxing administration insisted on a multilateral APA rather than multiple bilateral APAs. While multilateral APAs are still less common, there has been a steady increase of such cases over the past several years.

As a result of the COVID-19 pandemic and the constant changes in the global economy and tax landscape, multinationals are continuing to revisit and assess their supply chain impacts and manage their global controversy matters related to their intercompany transactions. Global transfer pricing controversy has increased significantly since 2020. Given the likelihood of tax law changes related to BEPS 2.0 it is critical that taxpayers establish relationships with APMA (and other competent authorities) to understand the nuances of the rules and their application in each jurisdiction. Accordingly, APAs are an increasingly attractive way to obtain transfer pricing certainty in an increasingly uncertain tax environment.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), National Tax Department, International Tax and Transaction Services, Transfer Pricing
  • Ryan J. Kelly, Americas ITTS Tax Controversy Leader, Washington, DC 
  • Hiro Furuya, Dallas 
  • Heather Gorman, Washington, DC 
  • Yi He, New York
  • Ameet Kapoor, San Jose 
  • Carlos Mallo, Washington, DC 
  • Marla McClure, Washington, DC 
  • Mike McDonald, Washington, DC 
  • Sho Murai, New York 
  • Thomas Ralph, Washington, DC
  • Craig Sharon, Washington, DC 
  • Daniel Sosna, Washington, DC 
  • Thomas Vidano, Washington, DC

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.

  • Show article references#Hide article references

    1. The rest consists of transactions between subsidiaries of US and foreign-parented groups, i.e., sister companies (14%).

    2. The information in the tables in this Alert were published in Announcement 2022-7 in the format of pie charts for reference.