This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act of 1999, which requires the Secretary of the Treasury to report annually to the public concerning advance pricing agreements (APAs) and the Advance Pricing and Mutual Agreement Program (APMA Program), formerly known as the Advance Pricing Agreement Program (APA Program). This twentieth report describes the experience, structure, and activities of the APMA Program during calendar year 2018.

This notice modifies and supersedes the guidance in Notice 2019–11, which announced the waiver of the addition to tax for underpayment of estimated income tax for certain individuals for the 2018 tax year. This notice increases the availability of the waiver of the addition to tax by expanding the waiver to individuals whose total withholding and estimated tax payments equal or exceed eighty percent of the tax shown on the return for the 2018 taxable year. The notice updates procedures for requesting the waiver of the addition to tax. Additionally, the notice provides procedures for taxpayers who paid additions to tax for underpayment of estimated tax for tax year 2018 but who qualify for relief under this notice to request a refund of the addition to tax.

This procedure provides issuers of qualified mortgage bonds (QMBs) and qualified mortgage certificates (MCCs) with average area purchase price safe harbors for statistical areas in the United States and with a nationwide average purchase price for residences in the United States for purposes of QMB rules under section 143 of the Code and the MCC rules under section 25.

This notice sets forth the updated mortality improvement rates and static mortality tables that are used for purposes of determining minimum funding requirements under § 430(h)(3) for 2020 and minimum present value under § 417(e)(3) for distributions with annuity starting dates that occur during stability periods beginning in the 2020 calendar year.

ITG is updating the appendix to Notice 2013–1. The appendix lists the tribes that have resolved claims against the United States regarding trust assets. The list includes seven new tribes.

This notice modifies and supersedes the guidance in Notice 2019–11, which announced the waiver of the addition to tax for underpayment of estimated income tax for certain individuals for the 2018 tax year. This notice increases the availability of the waiver of the addition to tax by expanding the waiver to individuals whose total withholding and estimated tax payments equal or exceed eighty percent of the tax shown on the return for the 2018 taxable year. The notice updates procedures for requesting the waiver of the addition to tax. Additionally, the notice provides procedures for taxpayers who paid additions to tax for underpayment of estimated tax for tax year 2018 but who qualify for relief under this notice to request a refund of the addition to tax.

Notice 2013–1, 2013–3 IRB 281, provides guidance on the federal tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes. Additional tribes have settled tribal trust cases against the United States since publication of Notice 2013–1. This notice provides an updated Appendix that reflects the additional settlement agreements.

Notice 2013–1 Appendix is modified and superseded.

For further information regarding this notice, please contact Carmen Zucker at phone number (212) 436-1441 (not a toll-free number).

This notice modifies and supersedes the guidance in Notice 2019–11, which provided for the waiver of the addition to tax under section 6654 of the Internal Revenue Code (Code) for the underpayment of estimated income tax for certain individuals who would otherwise be required to make tax year 2018 estimated income tax payments on or before January 15, 2019.

This notice makes the following changes to the guidance provided in Notice 2019–11:

a. It increases the availability of the waiver of the addition to tax under section 6654 by expanding the waiver to certain individuals whose total withholding and estimated tax payments equal or exceed eighty percent (reduced from eighty-five percent threshold provided in Notice 2019–11) of the tax shown on the return for the 2018 taxable year.

b. It updates procedures for requesting the waiver of the addition to tax under section 6654 for failure to make estimated income tax payments for the 2018 taxable year otherwise required to be made on or before January 15, 2019.

c. It provides procedures for taxpayers who paid additions to tax under section 6654 for tax year 2018 but who qualify for relief under Notice 2019–25 to request a refund of the addition to tax.

This notice provides a waiver of the addition to tax under section 6654 of the Code for the underpayment of estimated income tax for certain individuals who would otherwise be required to make tax year 2018 estimated income tax payments on or before January 15, 2019. This waiver is limited to individuals whose total withholding and estimated tax payments equal or exceed eighty percent of the tax shown on the return for the 2018 taxable year.

Generally, the Code requires taxpayers to pay federal income taxes as they earn income. To the extent these taxes are not withheld, a taxpayer must pay estimated income tax on a quarterly basis.

Section 6654 provides that, in the case of an individual, estimated income tax is required to be paid in four installments and the amount of any required installment is 25 percent of the required annual payment. Generally, under section 6654(d)(1)(B), the required annual payment is the lesser of (i) 90 percent of the tax shown on the return for the taxable year or (ii) 100 percent of the tax shown on the taxpayer’s return for the preceding taxable year (110 percent if the individual’s adjusted gross income on the previous year’s return exceeded $150,000), so long as the preceding taxable year was a full twelve months long. However, an individual may not use the tax for the preceding taxable year to calculate the required estimated tax payments if that taxable year was not 12 months long, or the individual did not file a return for that preceding taxable year. Under section 6654(d)(2), the amount of the required installment is the annualized income installment for those taxpayers who establish that such amount is lower than 25 percent of the required annual payment determined under section 6654(d)(1). Pursuant to section 6654(g), income taxes withheld from wages are deemed to be paid evenly throughout the tax year, unless the taxpayer establishes the dates on which the amounts were actually withheld. Section 6654(a) imposes an addition to tax for failure to make a sufficient and timely payment of estimated income tax.

An individual taxpayer will not be subject to the addition to tax if an exception or waiver provision applies. Under section 6654(e)(1), an addition to tax will not be imposed on an individual taxpayer if the taxpayer owes less than $1,000 in tax, after subtracting tax withheld on wages. Under section 6654(e)(2), an individual will not be subject to an addition to tax if the individual did not have any tax liability for the previous year, the preceding taxable year was 12 months, and the individual was a citizen or resident of the United States throughout the preceding tax year. In addition, the Secretary is authorized by section 6654(e)(3)(A) to waive the addition to tax if he “determines that by reason of casualty, disaster, or other unusual circumstances the imposition of such addition to tax would be against equity and good conscience.”

The December 22, 2017, enactment of Public Law 115–97, commonly referred to as the “Tax Cuts and Jobs Act” or “TCJA,” included a broad array of changes to the Code affecting millions of individual taxpayers. On February 28, 2018, the Internal Revenue Service (IRS) released an updated Withholding Calculator on IRS.gov and a new version of Form W–4 to help individual taxpayers determine their appropriate amount of 2018 tax withholding. Despite the release of the updated Withholding Calculator and new Form W–4, some individual taxpayers may have been unable to accurately calculate the amount of their required estimated income tax payments for the 2018 tax year. Accordingly, the IRS is providing additional relief to individual taxpayers by waiving certain penalties if the requirements set forth in section 3 of this notice are satisfied.

Pursuant to the authority in section 6654(e)(3)(A), the addition to tax under section 6654 for failure to make estimated income tax payments for the 2018 taxable year otherwise required to be made on or before January 15, 2019, is waived for any individual whose total withholding and estimated tax payments made on or before January 15, 2019, equal or exceed eighty percent of the tax shown on that individual’s return for the 2018 taxable year.

To request this waiver, an individual must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The form can be filed with a return filed electronically or on paper. Taxpayers should complete Part I of Form 2210 and the worksheet included in the form instructions to determine if the waiver in this notice applies. If the waiver applies, check the waiver box (Part II, Box A), include the statement “80% Waiver” next to Box A, and file page 1 of Form 2210 with the return. Forms, instructions, and other tax assistance are available on IRS.gov. The IRS toll-free number for general tax questions is 1-800-829-1040. This waiver is in addition to any other exception that section 6654 provides to the underpayment of estimated income tax.

Taxpayers who qualify for relief under Notice 2019–25 may have already paid additions to tax under section 6654 for tax year 2018. If the waiver under this notice applies to a taxpayer and the taxpayer has already paid additions to tax under section 6654 for the 2018 tax year, to claim a refund of the additions to tax under section 6654 for the 2018 tax year, the taxpayer should file Form 843, Claim for Refund and Request for Abatement. Taxpayers should complete the form and include the statement “80% Waiver of estimated tax penalty” on Line 7.

If neither the waiver provided by this notice nor any other exception applies to an individual taxpayer, the amount of any addition to tax is determined by applying the underpayment interest rate established under section 6621 of the Code to each required installment of estimated tax that was underpaid for the period that the installment is underpaid. The period of the underpayment runs from the due date for the installment to the earlier of April 15, 2019, or the date on which the underpayment is paid. This notice has no effect on determining the amount of each required installment for an individual whose total withholding and estimated tax payments do not equal or exceed eighty percent of the tax shown on that individual’s return for the 2018 taxable year.

Notice 2019–11 is modified and superseded.

The principal author of this notice is Michael A. Franklin of the Office of the Associate Chief Counsel (Procedure and Administration). For further information, please contact Mr. Franklin at (202) 317-6844 (not a toll-free number).

This notice specifies updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans under § 430(h)(3)(A) of the Internal Revenue Code (Code) and section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974, Pub. L. No. 93–406, as amended (ERISA). These updated mortality improvement rates and static tables, which are being issued pursuant to the regulations under § 430(h)(3)(A), apply for purposes of calculating the funding target and other items for valuation dates occurring during the 2020 calendar year.

This notice also includes a modified unisex version of the mortality tables for use in determining minimum present value under § 417(e)(3) of the Code and section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2020 calendar year.

Section 412 of the Code provides minimum funding requirements that generally apply for defined benefit plans. Section 412(a)(2) provides that § 430 specifies the minimum funding requirements that generally apply to defined benefit plans that are not multiemployer plans. Section 430(a) defines the minimum required contribution for such a plan by reference to the plan’s funding target for the plan year. Under § 430(d)(1), a plan’s funding target for a plan year generally is the present value of all benefits accrued or earned under the plan as of the first day of that plan year.

Section 430(h)(3) provides rules regarding the mortality tables that generally are used under § 430. Under § 430(h)(3)(A), except as provided in § 430(h)(3)(C) or (D), the Secretary is to prescribe by regulation mortality tables to be used in determining any present value or making any computation under § 430. Those tables are to be based on the actual experience of pension plans and projected trends in that experience. Section 430(h)(3)(B) requires the Secretary to revise any table in effect under § 430(h)(3)(A) at least every 10 years to reflect the actual experience of pension plans and projected trends in that experience.

Section 430(h)(3)(C) provides that, upon request by a plan sponsor and approval by the Secretary, substitute mortality tables that meet the applicable requirements may be used in lieu of the standard mortality tables provided under § 430(h)(3)(A). Section 430(h)(3)(D) provides for the use of separate mortality tables with respect to certain individuals who are entitled to benefits on account of disability.

The mortality improvement rates for valuation dates occurring during 2020 are the mortality improvement rates in the Mortality Improvement Scale MP–2018 Report (issued by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries and available at https://www.soa.org/Files/resources/experience-studies/2018/mortality-improvement-scale-mp-2018.pdf).

The static mortality tables that apply under § 430(h)(3)(A) for valuation dates occurring during 2020 are set forth in the appendix to this notice. The mortality rates in these tables have been developed from the methodology and base mortality rates set forth in § 1.430(h)(3)–1(c) and (d) using the mortality improvement rates specified in the previous section of this notice.

The static mortality table that applies under § 417(e)(3) for distributions with annuity starting dates occurring during stability periods beginning in 2020 is set forth in the appendix to this notice in the column labeled “Unisex.” The mortality rates in this table are derived from the mortality tables specified under § 430(h)(3)(A) for 2020 in accordance with the procedures set forth in Rev. Rul. 2007–67.

In section 4 of the Mortality Improvement Scale MP–2018 Report, RPEC discusses an alternative model for developing mortality improvement rates from historical U.S. population mortality rates. The alternative model is identical to the current model except that a different approach is used to graduate (that is, smooth) the historical mortality rates. In particular, the finite difference operators used in the smoothness components of the Whittaker-Henderson objective function are of order 2, rather than order 3. RPEC’s back-testing of the alternative model showed improved stability of mortality improvement rates from year to year; however, the alternative approach did not generate as tight of a fit of the graduated mortality improvement rates to the ungraduated historical mortality improvement rates. The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) request comments about whether or not to use this alternative model to determine the mortality improvement rates that apply under § 430(h)(3)(A) for future years.

Additionally, in the preamble to § 1.430(h)(3)–1, the Treasury Department and the IRS stated that the mortality improvement rates used under § 1.430(h)(3)–1 may not be updated for a year if changes to the mortality improvement rates for the year would be minimal. The Treasury Department and the IRS request comments about whether future updates to the mortality improvement rates used under § 1.430(h)(3)–1 should be delayed until the cumulative changes to expected mortality improvement rates reach a particular magnitude. Commenters requesting that changes to mortality improvement rates be made less frequently than annually should specify how the magnitude of cumulative changes should be measured and what level of cumulative changes should support an update of mortality improvement rates.

The principal authors of this notice are Arslan Malik and Linda S. F. Marshall of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information regarding this notice, contact Arslan Malik or Linda Marshall at (202) 317-6700 (not a toll-free number).

This revenue procedure provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code (Code), and issuers of mortgage credit certificates, as defined in section 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam.

.01 Section 103(a) provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a “qualified bond” within the meaning of section 141. Section 141(e) provides, in part, that the term “qualified bond” means any private activity bond if such bond (1) is a qualified mortgage bond under section 143, (2) meets the volume cap requirements under section 146, and (3) meets the applicable requirements under section 147.

.02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a qualified mortgage issue. Section 143(a)(2)(A) provides that the term “qualified mortgage issue” means an issue of one or more bonds by a state or political subdivision thereof, but only if: (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of section 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on mortgage financing provided by the issue are used by the close of the first semiannual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue.

.01 Average area purchase prices for single-family and two to four-family residences in MSAs, and for certain counties and county equivalents are set forth below. The safe harbor for “ALL OTHER AREAS” (found at the end of the table below) may be used for a statistical area that is not listed below.

.02 The nationwide average purchase price (for use in the housing cost/income ratio for new and existing residences) is $298,000.

Rev. Proc. 2018–28 is obsolete except as provided in section 6 of this revenue procedure.

.01 Issuers may rely on this revenue procedure to determine average area purchase price safe harbors for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on March 20, 2019, and ends on the date as of which the safe harbors contained in section 4.01 of this revenue procedure are rendered obsolete by a new revenue procedure.

.02 Notwithstanding section 5 of this revenue procedure, issuers may continue to rely on the average area purchase price safe harbors contained in Rev. Proc. 2018–28, with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before April 19, 2019, if the commitments to provide financing or issue mortgage credit certificates are made on or before May 19, 2019.

.03 Except as provided in section 6.04, issuers must use the nationwide average purchase price limitation contained in this revenue procedure for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on March 20, 2019, and ends on the date when the nationwide average purchase price limitation is rendered obsolete by a new revenue procedure.

.04 Notwithstanding sections 5 and 6.03 of this revenue procedure, issuers may continue to rely on the nationwide average purchase price set forth in Rev. Proc. 2018–28 with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before April 19, 2019, if the commitments to provide financing or issue mortgage credit certificates are made on or before May 19, 2019.

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1877.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

This revenue procedure contains a collection of information requirement in section 3.03. The purpose of the collection of information is to verify the applicable FHA loan limit that issuers of qualified mortgage bonds and qualified mortgage certificates have used to calculate the average area purchase price for a given metropolitan statistical area for purposes of sections 143(e) and 25(c). The collection of information is required to obtain the benefit of using revisions to FHA loan limits to determine average area purchase prices. The likely respondents are state and local governments.

The estimated total annual reporting and/or recordkeeping burden is: 15 hours.

The estimated annual burden per respondent and/or recordkeeper: 15 minutes.

The estimated number of respondents and/or recordkeepers: 60.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

The principal authors of this revenue procedure are David White and Timothy Jones of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact David White on (202) 317-4562 (not a toll free number).

This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act of 1999, which requires the Secretary of the Treasury to report annually to the public concerning advance pricing agreements (APAs) and the Advance Pricing and Mutual Agreement Program (APMA Program), formerly known as the Advance Pricing Agreement Program (APA Program). The first report covered calendar years 1991 through 1999. Subsequent reports covered each calendar year 2000 through 2017 separately. This twentieth report describes the experience, structure, and activities of the APMA Program during calendar year 2018. It does not provide guidance regarding the application of the arm’s length standard.

Part I of this report includes information on the structure, composition, and operation of the APMA Program; Part II presents statistical data; and Part III includes general descriptions of various elements of the APAs executed in 2018, including types of transactions covered, transfer pricing methods used, and completion time.

[PUB. L. 106–170 § 521(b)(2)(A)]

In February 2012, the former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations^[2] within the Large Business and International Division of the IRS and combined with the U.S. Competent Authority staff responsible for transfer pricing cases, thereby forming the APMA Program.

In September 2018, APMA restructured its management and realigned its teams. As of December 22, 2018, the APMA Program included 56 team leaders, 12 economists, 6 managers and 3 assistant directors. Each assistant director oversees 2 managers who lead teams comprised of both team leaders and economists. The APMA Program’s main office is in Washington, DC, and it also has a significant presence in San Francisco and the Los Angeles area.

On August 31, 2015, new revenue procedures governing requests under the mutual agreement procedure (MAP) and APA applications were published in 2015–35 I.R.B. on pages 236 and 263, respectively. Revenue Procedure (Rev. Proc.) 2015–41 provides guidance and instructions on filing APA requests as well as guidance and information on the administration of APAs. Rev.

Proc. 2015–41 updates and supersedes Rev. Proc. 2006–9, 2006–1 C.B. 278, as modified by Rev. Proc. 2008–31, 2008–1 C.B. 1133, which is also superseded. Rev. Proc. 2015–40 provides procedures and guidance on requesting assistance from the U.S. Competent Authority where the taxpayer believes that the actions of the United States or a treaty country result or will result in the taxpayer being subject to taxation not in accordance with the applicable U.S. tax treaty. Rev. Proc. 2015–40 updates and supersedes Rev. Proc. 2006–54, 2006–2 C.B. 1035.

The 2009 and 2015 Model APAs appear in this report as Appendix 1 and Appendix 2, respectively. The 2015 Model APA was finalized in May 2018. The new model does not contain any major revisions from the draft revision that was released for public comment in the fall of 2017. A list of primary APMA contacts is available at https://www.irs.gov/businesses/corporations/apma-contacts.

[Pub. L. 106–170 § 521(b)(2)(C)(i-viii)]

The charts above illustrate the number of complete applications filed per year and the bilateral requests received in 2018 by foreign country. As of December 31, 2018, APMA had also received 71 user fee filings that were not yet accompanied by substantially complete APA applications, in addition to the 203 complete APA applications.

Consistent with prior years, roughly 40 percent of the APAs executed in 2018 were new APAs (i.e., not a renewal of a prior APA). The charts above illustrate the total number of APAs executed per year and the countries involved in the executed bilateral APAs. Over half of the bilateral APAs executed in 2018 involved mutual agreements with either Japan or Canada.

As the top chart illustrates, the number of pending requests continues to rise due largely to the increase in number of requests filed. As of December 31, 2018, over half of the pending bilateral APA requests involved either Japan or India.

[Pub. L. 106–170 § 521(b)(2)(D) and (E)]

Nature of the Relationships

§ 521(b)(2)(D)(i)

 

As in prior years, more than half of the APAs executed in 2018 involved transactions between non-U.S. parents and U.S. subsidiaries.

Covered Transactions, Functions and Risks, and Tested Parties

§ 521(b)(2)(D)(ii-iii)

 

Although most of the transactions^[3] covered in APAs executed in 2018 involve the sale of tangible goods or the provision of services, over 20% covered the use of intangible property, which can be among the most challenging in APMA’s inventory. The IRS continues to seek opportunities to work with taxpayers and treaty partners to provide prospective certainty, wherever appropriate, for transactions involving the use of intangible property.

In the majority of APAs, the covered transactions involve numerous business functions and risks. For instance, with respect to functions, APAs involving manufactured products typically involve a controlled group that conducts research and development (R&D), engages in product design and engineering, manufactures the product, markets and distributes the product, and performs support functions such as legal, finance, and human resources. Regarding risks, the controlled group may assume a variety of risks, including market risks, R&D risks, financial risks, credit and collection risks, product liability risks, and general business risks. In the APA evaluation process, a significant amount of time and effort is devoted to understanding how the functions and risks are allocated amongst the controlled group of companies that are party to the covered transactions. For methods requiring selection of a tested party, the tested party that is chosen generally will be the least complex of the controlled taxpayers.

 

Consistent with prior years, over 80 percent of the tested parties in 2018^[4] were U.S. distributors, U.S. manufacturers, or U.S. service providers.

Term Lengths of APAs Executed in 2018

§ 521(b)(2)(D)(x)

Table 6: Term Lengths of APAs Executed in 2018
Term Length (years)	Number of APAs
1	2
2	2
3	2
4	2
5	36
6	15
7	12
8	10
9	9
10	8
11	3
12	4
15	2
Average	7

 

As described in § 3.03(1) of Rev. Proc. 2015–41, taxpayers should request an APA term that would cover at least five prospective years and may also request that the APA be “rolled back” to cover one or more earlier taxable years, although the appropriate APA term is decided on a case- by-case basis. Of the APAs executed in 2018, almost 20 percent included rollback years. A substantial number of those APAs with terms of greater than five years were submitted as a request for a five-year term, and the additional years were agreed to between the taxpayer and the IRS (or, in the case of a bilateral APA, between the IRS and the foreign government upon the taxpayer’s request) to ensure a reasonable amount of prospectivity in the APA term.

Amount of Time Taken to Complete New and Renewal APAs

§ 521(b)(2)(E)

Table 7: Months to Complete New and Renewal APAs Executed in 2018
	Unilateral		Bilateral		Unilateral & Bilateral
	Average	Median	Average	Median	Average	Median
New	35.4	30.7	47.8	43.2	45.5	41.7
Renewal	32.4	36.3	43.9	42.0	40.8	40.1
New & Renewal	33.4	33.5	45.6	42.1	42.8	40.2

 

The median time required to complete an APA in 2018 increased to 40.2 months (from 33.8 months in 2017). This increase is mainly due to the completion of longstanding APAs as well as challenges coordinating negotiating schedules with treaty partners.

between

[Insert Taxpayer’s Name] and

The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name], EIN _________.

[Insert Taxpayer Name] is the common parent of an affiliated group filing consolidated

U.S. tax returns (collectively referred to as “Taxpayer”), and is entering into this APA on behalf of itself and other members of its consolidated group.

Taxpayer’s principal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].

This APA contains the Parties’ agreement on the best method for determining arm’s- length prices of the Covered Transactions under I.R.C. section 482, the Treasury Regulations thereunder, and any applicable tax treaties.

{If renewal, add} [Taxpayer and IRS previously entered into an APA covering taxable years ending ___ to ______, executed on _____.]

The Parties agree as follows:

1. Covered Transactions. This APA applies to the Covered Transactions, as defined in Appendix A.

2. Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.

3. Term. This APA applies to the APA Term, as defined in Appendix A.

4. Operation.

a. Revenue Procedure 2006–9 governs the interpretation, legal effect, and administration of this APA.

b. Nonfactual oral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue Procedure 2006–9 (including any proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in compromise negotiations within the meaning of Rule 408 of the Federal Rules of Evidence.

5. Compliance.

a. Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of this APA on its timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for any taxable year covered by this APA (APA Year) is filed prior to, or no later than 60 days after, the effective date of this APA, then Taxpayer must report its taxable income for that APA Year in an amount that is consistent with Appendix A and all other requirements of this APA either on the original U.S. Return or on an amended U.S. Return filed no later than 120 days after the effective date of this APA, or through such other means as may be specified herein.

b. {Use or edit the following when U.S. Group or Foreign Group contains more than one member.} [This APA addresses the arm’s-length nature of prices charged or received in the aggregate between Taxpayer and Foreign Participants with respect to the Covered Transactions. Except as explicitly provided, this APA does not address and does not bind the IRS with respect to prices charged or received, or the relative amounts of income or loss realized, by particular legal entities that are members of U.S. Group or that are members of Foreign Group.]

c. For each APA Year, if Taxpayer complies with the terms and conditions of this APA, then the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate between Taxpayer and Foreign Participant[s] with respect to the Covered Transactions.

d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:

e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix C and section 11.01 of Revenue Procedure 2006–9. Taxpayer must file the Annual Report for all APA Years through the APA Year ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert month and day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual Report shall be due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary to clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days. Additional time may be allowed for good cause.

f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, the Financial Statements, and other APA Records, for the APA Term and any other year necessary to verify compliance. For Taxpayer to comply with this APA, {use the following or an alternative} an independent certified public accountant must render an opinion that Taxpayer’s Financial Statements present fairly, in all material respects, Taxpayer’s financial position under U.S. GAAP.

g. In accordance with section 11.04 of Revenue Procedure 2006–9, Taxpayer will (1) maintain the APA Records, and (2) make them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes compliance with the record-maintenance provisions of I.R.C. sections 6038A and 6038C for the Covered Transactions for any taxable year during the APA Term.

h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.

i. {Optional for US Parent Signatories} To the extent that Taxpayer’s compliance with this APA depends on certain acts of Foreign Group members, Taxpayer will ensure that each Foreign Group member will perform such acts.

6. Critical Assumptions. This APA’s critical assumptions, within the meaning of Revenue Procedure 2006–9, section 4.05, appear in Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006–9, section 11.06, governs.

7. Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return information” under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C. section 6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.

8. Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the Director of the Advance Pricing and Mutual Agreement Program, to the extent reasonably practicable, before seeking alternative remedies.

9. Materiality. In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material facts” in Revenue Procedure 2006–9, section 11.06(4).

10. Section Captions. This APA’s section captions, which appear in italics, are for convenience and reference only. The captions do not affect in any way the interpretation or application of this APA.

11. Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D contains definitions for capitalized terms not elsewhere defined in this APA.

12. Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever, delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.

13. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to Taxpayer.

14. Notice. Any notices required by this APA or Revenue Procedure 2006–9 must be in writing. Taxpayer will send notices to the IRS at the address and in the manner set forth in Revenue Procedure 2006–9, section 4.11. The IRS will send notices to:

Taxpayer Corporation

Attn: Jane Doe, Sr. Vice President (Taxes) 1000 Any Road

Any City, USA 10000 (phone: )

15. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an original.

WITNESS,

The Parties have executed this APA on the dates below.

[Taxpayer Name in all caps]

By: ______ Date: ____, 201____

Jane Doe

Sr. Vice President (Taxes)

IRS

Date:____, 201____

By: ________

John C. C. Hughes

Director, Advance Pricing and Mutual Agreement Program

1. Covered Transactions.

[Define the Covered Transactions.]

2. APA Term.

This APA applies to Taxpayer’s taxable years ending ___through ____ (APA Term).

3. TPM.

{Note: If appropriate, adapt language from the following examples.} [The Tested Party is ____.]

• CUP Method

The TPM is the comparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for ____is between ____and ____ per unit.

• CUT Method

The TPM is the CUT Method. The Arm’s Length Range of the royalty charged for the license of ____is between ____% and ____% of [Taxpayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net sales revenue or other royalty base.]

• Resale Price Method (RPM)

The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as follows: the Tested Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations sections 1.482– 5(d)(1) and (2)) for that APA Year. The Arm’s Length Range is between ____% and ____%, and the Median of the Arm’s Length Range is ____%.

• Cost Plus Method

The TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the Tested Party’s ratio of gross profit to production

costs (as those terms are defined in Treasury Regulations sections 1.482–3(d)(1) and (2)) for that APA Year. The Arm’s Length Range is between ____% and ____%, and the Median of the Arm’s Length Range is ____%.

• CPM with Berry Ratio PLI

The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s Berry Ratio is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses (as those terms are defined in Treasury Regulations sections 1.482–5(d)(2) and (3)) for that APA Year. The Arm’s Length Range is between ____and ____, and the Median of the Arm’s Length Range is ____.

• CPM using an Operating Margin PLI

The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s Operating Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales revenue (as those terms are defined in Treasury Regulations section 1.482–5(d)(1) and (4)) for that APA Year. The Arm’s Length Range is between ____% and ____%, and the Median of the Arm’s Length Range is ____%.

• CPM using a Three-year Rolling Average Operating Margin PLI

The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Party’s operating profit (within the meaning of Treasury Regulation section 1.482–5(d)(4) for that APA Year and the two preceding years, divided by the sum of its sales revenue (within the meaning of Treasury Regulation section 1.482–5(d)(1)) for that APA Year and the two preceding years. The Arm’s Length Range is between ____% and ____%, and the Median of the Arm’s Length Range is ____%.

• Residual Profit Split Method

The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual profit-split mechanism].

[Insert additional provisions as needed.]

4. Application of TPM.

For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] within

the Arm’s Length Range, then the amounts reported on Taxpayer’s U.S. Return must clearly reflect such results.

For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] outside the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect an adjustment that brings the [price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin] to the Median.

For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s and Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with the following adjustments:

(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be treated as an operating expense]; and

(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such results shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.

5. APA Revenue Procedure Treatment

If Taxpayer makes an adjustment under paragraph 4 of this Appendix A (a “primary adjustment”), Taxpayer and its related foreign entity may elect APA Revenue Procedure Treatment in accordance with section 11.02(3) of Revenue Procedure 2006–9 and avoid the possible adverse tax consequences of a secondary adjustment that would otherwise follow the primary adjustment.

[Insert additional provisions as needed.]

This APA’s critical assumptions are:

1. The business activities, functions performed, risks assumed, assets employed, and financial and tax accounting methods and classifications [and methods of estimation] of Taxpayer in relation to the Covered Transactions will remain materially the same as described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.

[Insert additional provisions as needed.]

The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes, work papers, records, or other writings that support the information provided in such documents.

The Annual Report (and each of the four copies required by paragraph 5(e) of this APA) will include:

1. Two copies of a properly completed APA Annual Report Summary in the form of Appendix E to this APA, one copy of the form bound with, and one copy provided separately from, the rest of the Annual Report.

2. A table of contents, organized as follows:

3. Statements that fully identify, describe, analyze, and explain:

a. All material differences between the U.S. Group’s business operations (including functions, risks assumed, markets, contractual terms, economic conditions, property, services, and assets employed) during the APA Year from the business operations described in the APA Request. If there have been no material differences, the Annual Report will include a statement to that effect.

b. All material differences between the U.S. Group’s accounting methods and classifications, and methods of estimation used during the APA Year, from those described or used in the APA Request. If any change was made to conform to changes in U.S. GAAP (or other relevant accounting standards) Taxpayer will specifically identify the change. If there has been no material change in accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that effect.

c. Any change to the Taxpayer notice information in paragraph 14 of this APA.

d. Any failure to meet any critical assumption. If there has been no failure, the Annual Report will include a statement to that effect.

e. Whether or not material information submitted while the APA Request was pending is discovered to be false, incorrect, or incomplete.

f. Any change to any entity classification for federal income tax purposes (including any change that causes an entity to be disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions or is otherwise relevant to the TPM.

g. The amount, reason for, and financial analysis of (1) any primary adjustments made under Appendix A for the APA Year; and (2) any (a) secondary adjustments that follow such primary adjustments or (b) accounts receivable that Taxpayer establishes, in lieu of secondary adjustments, by electing APA Revenue Procedure Treatment pursuant to paragraph 5 of Appendix A and Revenue Procedure 2006–9, section 11.02(3), for the APA Year, including but not limited to:[nl]

h. The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the TPM for the APA Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. Return for the APA Year.

i. Whether Taxpayer contemplates requesting, or has requested, to renew, modify, or cancel the APA.

4. The Financial Statements, and any necessary account detail to show compliance with the TPM, including consolidating financial statements, segmented financial data, records from the general ledger, or similar information if the assets, liabilities, income, or expenses relevant to showing compliance with the TPM are a subset of the assets, liabilities, income, or expenses presented in the Financial Statements.

5. {Use the following or the alternative prescribed by paragraph 5(f) of this APA:} A copy of the independent certified public accountant’s opinion required by paragraph 5(f) of this APA.

6. A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and reference the information required under item 4 above in

sufficient account detail to allow the IRS to determine whether Taxpayer has complied with the TPM.

7. An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities that are parties to the Covered Transactions or are otherwise relevant to the TPM.

8. A copy of the APA and any amendment.

9. A penalty of perjury statement, executed in accordance with Revenue Procedure 2006–9, section 11.01(6) and (7).

The following definitions control for all purposes of this APA. The definitions appear alphabetically below:

The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader supplies some of the information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the form as part of its Annual Report.

The Advance Pricing and Mutual Agreement Program (“APMA”) of the Internal Revenue Service (“IRS”) is providing this template for use in drafting advance pricing agreements (“APAs”) issued under IRS Revenue Procedure 2015–41, 2015–35 I.R.B. 263 (“Rev. Proc. 2015–41”). This template is designed to systematize how taxpayers propose terms for their APAs and standardize language used in executed APAs. It will improve efficiency in the APA process and enhance consistency in the administration of the APA program.

Rev. Proc. 2015–41 requires that taxpayers include as part of a complete APA request a draft APA and a “redline” comparison of the proposed draft APA against the current model APA. See section 2.03, exhibit 15, of the Appendix to Rev. Proc. 2015–41. This template serves as the model APA. A taxpayer is required to produce the “redline” comparison by following the instructions below to edit this template with tracked changes. The draft APA and “redline” comparison are then to be included in Word format in the complete APA request. (Before editing the template with tracked changes, a taxpayer should remove this introduction and the instructions below from the Microsoft Word file.)

The assigned APMA team will review the APA’s terms proposed in the draft APA. If the APMA team accepts the proposed terms in light of its review of the taxpayer’s complete APA request and other information obtained during the APA process, then the text of the draft APA, edited as needed to fill in any information not available at the time of the APA Request, will be adopted as the text of a finally executed APA. If the APMA team does not accept the proposed terms, it will discuss modifications to the draft APA with the taxpayer during the APA process. For bilateral and multilateral APAs, the terms of the executed APA will of necessity be consistent with the terms of the underlying mutual agreement between the United States and one or more treaty partners.

The template is designed to minimize editing by using an options-based format for selecting from terms presented in certain sections of the model APA. The options presented are those which APMA considers standard and which it has accepted in final APAs. These options are not binding on APMA, however. APMA reserves the right to modify the option selections, the specific option language used, or any other terms before executing an APA with the taxpayer.

Options are indicated by square brackets (“[]”). An “x” should be inserted between the brackets to indicate the selected option (“[x]”). Options that are not selected should not be deleted, but instead should be left in the text of the draft APA. The options to which APMA and

the taxpayer ultimately agree for the final APA will be indicated by the presence or absence of an “x”. The term associated with the “x” will be given operative effect in the executed APA.

Certain options are flagged with an asterisk after the square brackets (“[]*”). To facilitate the APMA team’s subsequent review of the draft APA, the asterisks should not be deleted.

Taxpayers that select flagged options are required to specifically provide justification for the selection in the APA request. See section 1.02, Part 5, of the Appendix to Rev. Proc. 2015–41.

The template contains placeholder phrases consisting of a hashtag followed by one or more words in block capital letters (e.g., “#COUNTRY”). Generally, the taxpayer should replace a placeholder phrase with appropriate text, subject to the following conventions:

The APA Term will be expressed as dates certain, e.g., “January 1, 2017 to December 31, 2022, inclusive”, rather than as particular tax years.

Taxpayers may need to draft custom text for situations or options not included in the template. For example, a taxpayer may propose additional critical assumptions to address specific regulatory contingencies or conditions the taxpayer is expected to face during the term of the APA. As another example, the provision titled “Limitation on Assistance” at the end of the Recitals might be modified based on an understanding reached in the prefiling stage of the APA process. In some cases, a particular critical assumption might facilitate reaching an agreement on an APA. Taxpayers that include custom text are required to specifically provide justification for the inclusion in the APA request, just as selecting an option with an asterisk^[9] requires justification. Any custom text must also be evident in the “redline” comparison of the proposed draft APA.

The template contains certain tables that the taxpayer should edit. Entries in the tables will not contain hashtags, but taxpayers nevertheless should fill in the information and add additional rows to the tables if needed. Taxpayers also should fill in the “APA Information” in the table in Appendix D, to the extent available or proposed.

Appendix A of this template contains the description of the APA’s covered issue(s) and covered method(s). Taxpayers should note the following points in completing Appendix A:

Appendix A uses the term “Tested Party.” When applied in the context of methods that consider, or test, data from only one party to a transaction, this term is similar in concept to the term “tested party” as discussed in the OECD Guidelines at paragraphs 3.18 and 3.19, and as defined in the U.S. Treasury Regulations section 1.482–5(b)(2). However, some methods consider, or test, data from both parties to a transaction, where there is no singular “tested” party. Even in applying such methods, however, it is typically the case that one particular party’s results are formally tested for compliance with the method. For purposes of this template, in such circumstances, the party whose results are formally tested in applying any particular method is the “Tested Party”, even if that party is not strictly a “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, or as defined in the U.S. Treasury Regulations section 1.482–5(b)(2).

between

#SIGNATORY

and

THE INTERNAL REVENUE SERVICE

[] Bilateral with #COUNTRY

[] Multilateral with #COUNTRIES [] Unilateral

Term: #DATE to #DATE, inclusive

[] This APA is commonly referred to as #APA NAME.

The Parties to this APA are the Internal Revenue Service (“IRS”) and #NAME OF EACH NON-IRS SIGNATORY, WITH EIN.

[] #SIGNATORY will be referred to as “U.S. Taxpayer.”

[] #SIGNATORY is the common parent of an affiliated group filing consolidated

U.S. tax returns and is entering into this APA on behalf of both itself and the following members of its consolidated group: #MEMBERS OF GROUP. All members of this consolidated group will be referred to collectively as “U.S. Taxpayer.”

[] This APA is a renewal of one or more prior APAs, which are listed below in reverse chronological order:

Key:

Key:

The term “Worldwide Group” is defined below in paragraph 12 of this APA. The ultimate parent entity or owner of Worldwide Group is:

#ENTITY NAME, ADDRESS, AND PHONE

U.S. Taxpayer’s principal place of business is #CITY, #STATE. #BRIEF DESCRIPTION OF U.S. TAXPAYER AND NON-U.S. TAXPAYER (DEFINED IN SECTION 1 OF APPENDIX A), AND SPECIFICALLY OF EACH COVERED ENTITY (DEFINED IN SECTION 1 OF APPENDIX A).

This APA contains the Parties’ agreement on the Covered Method(s) for resolving the Covered Issue(s) under Code section 482 and any other Code sections that are identified in Appendix A to this APA, the U.S. Treasury Regulations thereunder, and (if applicable):

[] The income tax convention(s) between the United States and #COUNTRY(IES).

This APA shall not limit the authority of the IRS to (1) verify compliance with this APA as to the Covered Issue(s), or (2) audit issues other than Covered Issue(s), including issues that arise under Code section 482 and any other Code sections identified in Appendix A to this APA, and the U.S. Treasury Regulations thereunder.

The Covered Issue(s) may relate to one or more countries which (i) have an income tax convention with the United States, but (ii) are not a party to a mutual agreement whose terms are implemented by this APA. U.S. Taxpayer acknowledges that the IRS may decline to provide competent authority assistance concerning taxation by such country(ies) that relates to the Covered Issue(s). See section 2.02(4)(d) of Rev. Proc. 2015–41.

The Parties agree as follows:

1. Covered Entities. This APA’s Covered Entities are defined in Appendix A.

2. Covered Issue(s). This APA applies to the Covered Issue(s), as defined in Appendix A.

3. Covered Method(s). Appendix A sets forth the Covered Method(s) for the Covered Issue(s).

4. Term. This APA applies to the APA Term, as defined in Appendix A.

5. Operation.

a. Rev. Proc. 2015–41 governs the interpretation, legal effect, and administration of this APA.

b. The APMA program provides a voluntary process whereby the IRS and taxpayers may resolve transfer pricing issues and issues for which transfer pricing principles may be relevant in a principled and cooperative manner on a prospective basis. As such, the APA process (as defined in Rev. Proc. 2015–41) is an alternative to dispute resolution that benefits both taxpayers and the IRS and that is intended to promote and encourage open communication. Accordingly, the IRS and U.S. Taxpayer agree that neither party will attempt to use nonfactual oral or written representations, within the meaning of sections 6.04 and 6.05 of IRS Revenue Procedure 2015–41 (including any proposals to use particular Covered Method(s)), made in conjunction with the APA Request in any judicial or administrative proceeding. The IRS and

U.S. Taxpayer also agree that factual representations made in conjunction with the APA Request may be used in judicial and administrative proceedings.

6. Compliance.

a. U.S. Taxpayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of this APA. U.S. Taxpayer must so report its taxable income in the following manner:

i. For any APA Tax Year for which U.S. Taxpayer timely files its original U.S. return prior to, or no later than 60 days after, the U.S. Effective Date, U.S. Taxpayer must so report its taxable income for that APA Tax Year in one of the following ways:

b. For each Covered Issue, if any, that involves determination of pricing and/or income allocation^[10] under Code section 482 (or Code section 367(d)) as modified by any applicable income tax convention, this APA addresses the pricing and/or income allocation between U.S. Taxpayer and Non-U.S. Taxpayer in the aggregate. Except as explicitly provided, this APA does not address and does not bind the IRS with respect to pricing or income allocation

(1) among particular legal entities that are members of U.S. Taxpayer, or (2) among particular legal entities that are members of Non-U.S. Taxpayer. In addition, this APA does not address pricing or income allocation between an entity that is not a Covered Entity, and any entity.

c. For each APA Tax Year, if U.S. Taxpayer complies with the terms and conditions of this APA, then, provided that this APA remains effective for that APA Tax Year for a particular Covered Issue, the IRS will not make or propose any allocation or adjustment that is inconsistent with the application under this APA of the applicable Covered Method to that Covered Issue.

d. If U.S. Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:

e. U.S. Taxpayer must timely file an Annual Report for each APA Tax Year in accordance with this paragraph 6(e), Appendix C to this APA, and section 7.02 of Rev. Proc. 2015–41. Annual Reports for multiple APA Tax Years may be combined, provided that all required information for each APA Tax Year is clearly presented. For each Annual Report, U.S. Taxpayer must submit an original printed version containing a signed original “penalties of perjury” declaration, one printed copy of the contents of the original printed version, and an electronic copy of the contents of the original printed version. Any exhibits in the printed version must be tabbed, and the electronic copy is subject to the same requirements, as to medium and format, that are specified for APA requests in section 2 of the Appendix to Rev. Proc. 2015–41. Upon request, U.S. Taxpayer must provide additional copies of the printed version, at addresses specified by the IRS. U.S. Taxpayer must file the Annual Report for each APA Tax Year by the later of (i) #DATE CERTAIN, NORMALLY APPROXIMATELY 90 DAYS AFTER THE U.S. EFFECTIVE DATE, and (ii) the fifteenth day of the twelfth month following the close of the APA Tax Year. The IRS may by notice request additional information reasonably necessary to clarify or complete the Annual Report. (See paragraph 16, and section 3(c) of Appendix C, regarding notices.) U.S. Taxpayer will provide such requested information within 30 days from the date of the notice unless a later date is specified in the notice.

Additional time may be allowed for good cause in the discretion of the Director of the Advance Pricing and Mutual Agreement Program.

f. The IRS will determine whether U.S. Taxpayer has complied with this APA based on U.S. Taxpayer’s U.S. returns, the Financial Statements and additional statements required under this paragraph 6(f), and other APA Records, for all APA Tax Years and any other tax year necessary to verify compliance. The Financial Statements and additional statements required for a particular tax year are:

i. For each U.S. Covered Entity, the additional statements consist of the following statement(s):

ii. For each Non-U.S. Covered Entity, the additional statements consist of the following statement(s):

iii. With reference to the Financial Statements for a particular Covered Entity for a particular tax year, certain terms used in paragraphs 6(f)(i) and 6(f)(ii) are defined as follows:

g. In accordance with section 7.04 of Rev. Proc. 2015–41, U.S. Taxpayer will (1) maintain the APA Records, and (2) make them available to the IRS in connection with an examination under section 7.03 of Rev. Proc. 2015–41. Compliance with this subparagraph constitutes compliance with the record-maintenance provisions of Code sections 6038A and 6038C for the Covered Issue(s) for any APA Covered Year.

h. The “true taxable income” within the meaning of U.S. Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an affiliated group filing a U.S. consolidated return will be determined under the U.S. Treasury Regulations under Code section 1502.

i. To the extent that U.S. Taxpayer’s compliance with this APA depends on certain acts of other members of Worldwide Group, U.S. Taxpayer will ensure that such other members will perform such acts.

7. Critical Assumptions. The Critical Assumptions, which are this APA’s critical assumptions as defined in Rev. Proc. 2015–41, appear in Appendix B. If any Critical Assumption has not been met, then Rev. Proc. 2015–41, section 7.06, governs, as modified by Appendix B to this APA.

8. Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return information” under Code section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under Code section 6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.

9. Disputes. If a dispute arises concerning the interpretation or application of this APA, the Parties will seek a resolution by the Director, Treaty and Transfer Pricing Operations, to the extent reasonably practicable, before seeking alternative remedies.

10. Materiality. In this APA the terms “material” and “materially” will be interpreted in a manner consistent with the description of “material facts” in Rev. Proc. 2015–41, section 7.06(4).

11. Paragraph Captions. This APA’s paragraph captions, which appear in italic type, are for convenience and reference only. The captions do not affect in any way the interpretation or application of this APA.

12. Terms and Definitions.

a. Unless otherwise specified, terms in the plural include the singular and vice versa.

b. Appendix A contains definitions for certain terms used in this APA’s body and appendices.

c. Certain terms used in this APA’s body and appendices are defined as follows: