ICAP is a voluntary, multilateral co-operative risk assessment and assurance process. ICAP is designed to provide multinational enterprise (MNE) groups with input on the level of tax compliance risk associated with certain cross-border transactions from the perspective of the participating tax administrations. ICAP is not an examination and does not provide the participating MNE groups the legal certainty that may be achieved through other means such as an Advance Pricing Agreement (APA). It does, however, give assurance where tax administrations participating in an MNE group’s risk assessment consider covered transactions to be low risk. In general, assurance for this purpose refers to the likelihood that a tax administration will dedicate examination resources to evaluate a transaction that has been determined to be low risk. ICAP operates through the exchange-of-information provisions of international agreements and is coordinated through the office of the Director of Treaty and Transfer Pricing Operations and the Transfer Pricing Risk Assessment (TPRA) team. These agreements include bilateral and multilateral tax treaties, Tax Information Exchange Agreements, and other international agreements for the exchange of information. Delegation Order 4−12 (as revised) provides for TPRA personnel to disclose information, including returns and return information to which IRC 6103(k)(4) applies to a competent authority of a foreign government in accordance with the terms and conditions of the applicable international exchange agreements. Strict adherence to all applicable disclosure and confidentiality provisions is required of all IRS employees, including those involved in an ICAP risk assessment. For more information, see IRM 4.60.1.1.2.1, Authority − Disclosure, Confidentiality, and Contacts with Foreign Tax Officials, and IRM 1.2.2.5.11 − Delegation Order 4−12 (Rev. 4), Authority to Act as "Competent Authority" or "Taxation Authority" Under Certain International Agreements, Authorize the Disclosure of Tax Information Under Mutual Legal Assistance Treaties, and Disclose Certain Tax Convention Information.

ICAP has three main stages: selection, risk assessment and issue resolution, and outcomes.

In general, the scope of the ICAP risk assessment includes transfer pricing and permanent establishment issues. Issues that are included in the scope of the ICAP risk assessment are referred to as covered transactions. It is anticipated that, in most cases, an ICAP risk assessment will focus on a single or two consecutive tax years, which will be the most recent for which necessary documentation, including the MNE group’s country-by-country report (CbC report), is available (“covered period(s)”). In addition, the IRS also aims to extend any assurances provided in ICAP to the two tax filing periods immediately following the covered period(s) (“roll-forward periods”), provided there are no material changes during these periods and the MNE group complies with certain annual filing requirements. See IRM 4.60.11.5, Outcome Stage.

Tax Treaties and Tax Information Exchange Agreements (TIEAs): The Exchange of Information (EOI) article under the relevant international exchange agreement (as described in IRM 4.60.1.1, Program Scope) with a foreign government provides the legal framework for exchanging information with foreign partners participating in an ICAP risk assessment. The Mutual Agreement Procedure (MAP) article of the relevant income tax treaty provides the legal basis for the IRS to negotiate and implement a resolution that is agreed to between the competent authorities in ICAP.

Delegation Order Authorizing Disclosure of Tax Convention Information: All exchanges of information in ICAP must comply with EOI procedures set forth in IRM 4.60.1, International Procedures, Exchange of Information. Under Delegation Order 4-12 (as revised), IRS officials and personnel within the TPRA program, and senior international advisors and senior economic advisors within TTPO, are delegated authority to disclose information, including returns and return information, to a foreign competent authority in accordance with the exchange of information provisions of international exchange agreements, to the extent necessary to perform their official duties. Accordingly, a TPRA team member, a TTPO senior international advisor, or a TTPO senior economic advisor must be present during all ICAP discussions with the tax administration of a foreign partner, and such personnel will be responsible for sending and receiving all written communications pertaining to ICAP.

The lead tax administration is responsible for coordinating all aspects of the selection, risk assessment (and issue resolution), and outcomes stages of the ICAP process. In general, the lead tax administration is the tax administration located in the same jurisdiction as the ultimate parent entity (UPE) of the MNE group. In exceptional circumstances, the tax administration in a different jurisdiction may serve as the lead tax administration (referred to as a “surrogate lead tax administration”). This may arise in circumstances where the tax administration in the UPE’s jurisdiction is not participating in ICAP or such jurisdiction is otherwise unable to serve as the lead tax administration.

A covered tax administration is a tax administration that has agreed to participate in the ICAP risk assessment of an MNE group. A covered tax administration is expected to actively participate in all stages of the ICAP process. A lead tax administration is also a covered tax administration for purposes of the ICAP risk assessment.

The MNE group is responsible for preparing the required documentation packages, working closely with the lead tax administration to ensure that the target timeframes for the ICAP stages are met, and responding to requests from covered tax administrations in a timely manner. In addition, the MNE group is also responsible for maintaining a data room where ICAP documentation will be made available to the lead tax administration and the covered tax administrations.

Program Reports: TPRA will prepare an annual ICAP report for the TTPO Director’s review. The annual ICAP report will include the number of ICAP cases in which the IRS is participating, the status of each case, and for completed ICAP cases, copies of the outcome letters and the status of each MNE’s ICAP Annual Update filing obligations.

Program Effectiveness: The effectiveness of IRS participation in ICAP will be assessed based on a variety of factors including the number of ICAP risk assessments in which the IRS is participating, the outcome of such cases, the estimated impact of such participation on IRS examination and Advanced Pricing and Mutual Agreement resources (when compared with the resources committed by TTPO to ICAP), and feedback from stakeholders, including LB&I personnel and taxpayers who have participated in ICAP.

The TPRA manager (and other TTPO management officials, where applicable) are responsible for ensuring compliance with the procedures set forth in this IRM.

Commonly used terms for this program are shown in the following table:

For additional information on ICAP, see the Organization for Economic Cooperation and Development’s (OECD) Forum for Tax Administration website at https://www.oecd.org/tax/forum-on-tax-administration/international-compliance-assurance-programme.htm. This website includes information about the jurisdictions participating in ICAP, application deadlines, and includes links to the ICAP Handbook and the OECD’s frequently asked questions (FAQs). In addition, the IRS has published a set of ICAP FAQs specific to U.S. MNE groups: https://www.irs.gov/businesses/international-businesses/international-compliance-assurance-program-icap-frequently-asked-questions.

The IRS determines an MNE group’s suitability for ICAP on a case-by-case basis. Factors the IRS may consider include but are not limited to:

The IRS will evaluate the MNE group's suitability for ICAP in coordination with other LB&I stakeholders, including personnel familiar with the MNE group through LB&I examinations and requests for competent authority assistance. This process will include a detailed review of the MNE group’s selection documentation package, tax returns, current examination status, examination history, and its engagement with the U.S. competent authority (for example, pending or completed APAs and MAP requests) in light of the suitability criteria in IRM 4.60.11.3.1(3). Taking into account this information and feedback from LB&I stakeholders, TPRA will prepare a recommendation as to the MNE group's suitability for ICAP for the review and approval of the applicable TPP territory manager and the TPP practice network program manager in consultation with a TTPO senior international advisor and/or a TTPO senior economic advisor. If such personnel are unable to agree on the MNE’s suitability for ICAP, a determination will be made by the TTPO Director. The MNE coordinator will contact the MNE group to discuss next steps in the ICAP process as outlined below if the IRS concludes that it is willing to serve as the lead tax administration. If the IRS determines that it is unable to serve as the lead tax administration, the MNE coordinator will inform the MNE group of the basis for its decision and whether the MNE group should consider re-applying for ICAP at a later date.

The IRS will coordinate with the MNE group to make the selection documentation package available to all tax administrations participating in ICAP where the MNE group has a constituent entity based on the most recent CbC report. This may include the MNE group posting the selection documentation package to a data room, or alternatively, the IRS may exchange the information with the relevant tax administrations. In cases where the IRS agrees to exchange the information with the relevant tax administrations, the delegated competent authority contact is responsible for coordinating this process.

As the lead tax administration, the IRS will host one or more multilateral selection stage meetings with the potential relevant tax administrations. During such meeting(s), the tax administrations are expected to exchange their views on the MNE group’s suitability for ICAP including:

In general, the IRS intends to include within the scope of its ICAP risk assessments all specifically identified and reported transactions subject to section 482 adjustments in which the United States is the jurisdiction of a counterparty. This means that the IRS will include in the scope of the risk assessment both intercompany transactions for which the counterparty jurisdiction is participating in ICAP, and intercompany transactions where the counterparty is not participating in ICAP. All transactions that are subject to pending or completed bilateral APAs are out of scope. With respect to PEs, the IRS intends to include within the scope of the ICAP risk assessment whether the business profits of a PE that have been reported by a MNE group for tax purposes are consistent with the applicable business profits article of an applicable income tax treaty. This includes both the business profits of a PE located in the United States and the business profits of a PE reported in a foreign jurisdiction by a U.S. person. At the MNE group's request, the IRS may also agree to include within the scope of the ICAP risk assessment the risk that an MNE group is conducting business operations through a PE that has not been recognized as such for tax purposes. In such cases, the MNE group will be required to identify the specific PE risk for which it is seeking assurance and provide detailed information that would facilitate IRS’s review of the PE issue. All other scoping decisions will be made on a case-by-case basis. In addition, the IRS prefers that the risk assessment include two covered tax years and two roll-forward periods. The IRS will, however, entertain requests for different covered tax years and roll forward periods in certain cases. IRS determinations regarding the proposed scope of an ICAP risk assessment will be made in coordination with all LB&I stakeholders, including TPRA, TTPO senior international advisors and/or TTPO senior economic advisors, and personnel familiar with the MNE group through LB&I examinations and/or requests for competent authority assistance.

The IRS will request that each prospective covered tax administration confirm in writing whether it will participate in the risk assessment by an agreed deadline. Tax administrations that have confirmed their participation will also be asked to provide the following information:

U.S. MNE groups must enter into an ICAP Memorandum of Understanding (MOU) with the IRS before proceeding to the risk assessment stage. The ICAP MOU describes the ICAP program and its limitations, the information sharing that will occur between the tax administrations in ICAP, and the potential outcomes of the risk assessment process. In addition, other tax administrations may have local law requirements that the MNE group must comply with before moving to the risk assessment stage (or before the MNE group can have direct engagement with the covered tax administrations). The IRS will coordinate with the covered tax administrations and the MNE group to ensure that all such requirements are addressed in a timely manner.

To ensure that ICAP and LB&I examination activities are properly coordinated, the MNE coordinator will provide written notification of the U.S. MNE group’s ICAP participation to relevant LB&I examination personnel within seven days of the MNE group’s confirmation that it will proceed to the risk assessment stage.

The decision of whether the IRS will act as a covered tax administration for a foreign MNE group will be made by applying the suitability criteria and procedures as outlined in IRM 4.60.11.3.1 (2), Selection Stage – IRS as Lead Tax Administration.

Refer to IRM 4.60.11.3.1 (5), Selection Stage – IRS as Lead Tax Administration, for information on IRS preferences regarding the scope of the ICAP risk assessment.

The UPE and the U.S. parent entity must sign a "Consent to Disclose and Authorization of Third Party Contacts," which authorizes the IRS to discuss matters impacting the MNE group’s U.S. taxpayers with other members of the MNE group (and vice versa). This form must be signed before the IRS has direct contact with the MNE group.

For foreign MNE groups, the lead risk assessor is responsible for complying with the notification requirement described in IRM 4.60.11.3.1 (8), Selection Stage – IRS as Lead Tax Administration.

The IRS will review the main documentation package for completeness and to ensure that the MNE group has addressed concerns raised by the covered tax administrations during the selection stage before it is posted to the MNE group’s data room. The IRS will timely contact the taxpayer to advise of a determination of an incomplete or complete documentation package.

After the MNE group has posted the main documentation package to the data room, the IRS will confirm that all covered tax administrations are able to access the materials. If a covered tax administration is unable to access the files posted to the data room, the IRS may need to coordinate with the MNE group and the covered tax administrations to provide an alternative method for delivering the documentation package materials.

After the covered tax administrations have confirmed access to the main documentation package, the IRS will coordinate a series of meetings with the covered tax administrations and/or the MNE group during the risk assessment and issue resolution stage. A brief description of such meetings including the timing, objectives, and expectations are included below. However, each ICAP risk assessment is unique and the timing and necessity for these meetings will be evaluated on a case-by-case basis. The MNE coordinator will facilitate the meetings with assistance from other ICAP team personnel, as needed.

An initial risk assessment meeting between the covered tax administrations will generally take place approximately four weeks after the delivery of the documentation package to the covered tax administrations. In general, the objectives for this meeting are to:

If the covered tax administrations conclude that a meeting with the MNE group is required, the IRS will coordinate with the MNE group on meeting preparation. Although the objectives of this meeting will vary depending on the circumstances of the risk assessment, the IRS should ensure that the MNE group meeting with the covered tax administrations is focused on the issues raised by the covered tax administrations (rather than a high-level overview of the MNE group's business and its transfer pricing policies, as the tax administrations should be familiar with this information by reviewing the main documentation package). Additionally, the IRS will consult with the MNE group to identify personnel (tax or business) who can address the issues raised by the covered tax administrations.

Shortly after the MNE group meeting, the lead tax administration will coordinate a meeting with the covered tax administrations to address the following items:

Additional risk assessment meetings will take place on an ad-hoc basis and focus on the covered transactions that one or more covered tax administrations have been unable to conclude are low risk. Prior to such meetings, the IRS may request that each covered tax administration provide to all participating tax administrations a list of transactions that it has determined are not low risk and the basis for such conclusions to ensure that additional risk assessment meetings are productive and to facilitate an informed discussion among the covered tax administrations.

The MNE coordinator will be in regular communication with the MNE group throughout the risk assessment stage to keep the MNE group apprised of the progress of the risk assessment and communicate any covered tax administration questions or requests for additional information.

Requests for additional information (for example, clarification of materials provided in the documentation package, requests for supplementary documentation, etc.) must be submitted by a covered tax administration to the IRS in writing. The MNE coordinator should set clear deadlines with the covered tax administrations to ensure that this process is organized and efficient. To provide appropriate context for the information requests, the covered tax administration should identify the covered transaction to which the request relates, the specific concern that prompted the covered tax administration’s request, and, where necessary, an explanation of how the information would facilitate their evaluation of the covered transaction(s). In general, MNE groups should respond to all supplemental documentation requests within four weeks. In general, the MNE group should make the questions and responses available to all covered tax administrations by posting such information to the MNE group's data room.

After the covered tax administrations have informed the lead tax administration that their risk assessment is complete, the lead tax administration may host a final risk assessment meeting focusing on any remaining covered transactions that were determined to be not low risk, whether the covered tax administrations have an interest in pursuing issue resolution in ICAP (and if not, potential next steps that may take place outside of ICAP), and setting a date for the exchange of draft outcome letters.

The IRS will generally follow the standard LB&I risk assessment procedures for evaluating the covered transactions in ICAP cases. For example, in the case of transfer pricing issues, refer to IRM 4.61.3.3.8, Initial Transfer Pricing Risk Assessment, for a general description of the transfer pricing risk assessment procedures employed by the IRS. If the IRS concludes that a covered transaction is not low risk, the IRS will not provide any assurances regarding the likelihood of future compliance activities with respect to such transactions. Such transactions, however, may be addressed through the optional issue resolution process (see IRM 4.60.11.4.3, Issue Resolution, below) or through other means (for example, MNE groups may be encouraged to seek an APA).

Covered transactions are assigned a low risk rating or a not low risk rating based on whether the transaction presents a potential risk of noncompliance for U.S. federal income tax purposes from the perspective of the IRS.

The risk assessment stage includes an optional issue resolution process, which affords the MNE and covered tax administrations the opportunity to reach an agreement in ICAP on the tax treatment of a covered transaction, including whether any tax adjustments are necessary.

The IRS will consider engaging in issue resolution on a case-by-case basis under the MAP article of an applicable income tax treaty. Relevant factors the IRS may consider in determining whether issue resolution in ICAP is suitable for a covered transaction include, but are not limited to, the materiality of the potential adjustment, the complexity of the transaction, and the extent to which there is agreement on the underlying facts of the transaction. Additionally, the IRS will need to consider whether the domestic law of the relevant covered tax administrations would limit or prevent issue resolution in ICAP.

If the IRS determines that a covered transaction is not low risk and satisfies the criteria for issue resolution, the lead risk assessor is responsible for preparing an issue resolution memorandum that addresses the following items:

The lead risk assessor must consult with the Advance Pricing and Mutual Agreement (APMA) program during the issue resolution process. The lead risk assessor should initiate the mandatory APMA consultation once the IRS ICAP team has identified a transaction as a potential candidate for issue resolution by contacting APMA≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. The lead risk assessor should provide APMA a copy of the issue resolution memorandum (or draft thereof) for APMA's input (supplemented by additional documentation where necessary). Depending on APMA’s feedback, the lead risk assessor may decide to move forward with the tax administration and MNE issue resolution consultations (described below), revise the issue resolution memorandum to reflect APMA’s input, or conclude that procedures outside of ICAP are more appropriate to resolve the compliance risks with the covered transaction(s) (for example, an APA request or a referral to LB&I examination). If the issue resolution process moves forward in ICAP, the lead risk assessor is required to keep APMA informed of material developments throughout the process.

The IRS will share the issue resolution memorandum with the covered tax administrations to solicit preliminary feedback on the IRS proposal, including whether the tax administrations have any issues if the lead tax administration were to share the document with the MNE group (or, alternatively, whether relevant tax administrations would like to provide a written response to the issue resolution memorandum before it is shared with the MNE group). Afterward, the lead tax administration will consult with the MNE group on whether it is interested in pursuing issue resolution in ICAP. If so, then the process continues with a tax administration consultation as described below. If not, the issue resolution process concludes, and IRS will assign a not low risk rating to the covered transaction(s) in question.

The IRS will consult with the relevant tax administrations to determine whether a tentative resolution can be reached in ICAP. This may involve one or more discussions between the IRS and the tax administrations, requests for additional information from the MNE group, and exchanging written positions on the covered transaction(s). If the tax administrations reach a tentative resolution, the lead risk assessor will update the issue resolution memorandum to reflect the results of the consultations with the relevant tax administrations.

If the tax administrations reach a tentative agreement in the resolution process, a proposal to resolve the issue will be presented to the MNE group for its consideration. The MNE group must indicate its acceptance or rejection of the proposal in writing. If the MNE group confirms in writing that it has agreed to the terms and conditions of the proposed resolution, the IRS and the relevant covered tax administrations will take steps to implement the resolution. If the MNE group rejects the proposed resolution, the issue resolution process concludes, and the IRS will categorize the covered transaction as not low risk.

For a resolution that requires an adjustment to an amount reported on a U.S. federal income tax return, the competent authorities of the respective tax administrations will exchange letters setting forth the terms and conditions of the mutual agreement, e.g., the amount of the adjustment and correlative relief to be provided and the amount to be withdrawn. In addition, the IRS will attach to the outcome letter described in IRM 4.60.11.5(5) a document that describes the terms and conditions of the mutual agreement and the steps the MNE must take to implement the resolution for U.S. federal income tax purposes, e.g., filing amended income tax returns reflecting the agreed adjustment. In addition, a disposition memorandum will be sent to the International Referral Recipient (IRR) and the IRS ICAP team. For additional information, see IRM 4.60.3.2.6(4) , U.S. Competent Authority’s Documentation of a MAP Case.

In general, the issue resolution process for foreign-initiated adjustments is expected to follow the same procedures as above, except that the IRS will request a detailed written analysis of the proposed adjustment from the initiating jurisdiction as a precondition to entering into issue resolution discussions with a covered tax administration. In addition, the lead risk assessor will prepare an Issue Resolution Memorandum (as described above) from the perspective of whether correlative relief would be appropriate and must consult with APMA before the MNE is presented with a formal issue resolution proposal.

The selection documentation package is composed of:

Items within the main documentation package must be provided for all covered periods. Core items in the main documentation package are:

Supplementary documentation means any other documents that covered tax administrations require for the risk assessment of a particular covered transaction or a particular MNE group that are not provided within the selection documentation package or the main documentation package. Supplementary documentation may include, but is not limited to, the following items:

Refer to IRM 4.60.11.4.1(12), Risk Assessment Stage – IRS as Lead Tax Administration, for additional information on procedures related to supplementary documentation requests.