USA Law and Practice Contributed by: Kevin Spencer, Kim Marie Boylan, Nicholas Wilkins and Christina Culver, White & Case LLP
7.5 APA Application Deadlines APAs are generally intended to apply primarily to pro - spective years but can also cover rollback years (see 7.8 Retroactive Effect for APAs ). The APMA normally expects an APA request to cover at least five prospec - tive years and, for a unilateral APA, the APMA must receive a complete APA application by the date the US return is timely filed for the applicable prospec - tive year. To better co-ordinate the timing of discussions on bilateral and multilateral APAs, a taxpayer must file a bilateral or multilateral APA request no later than 60 days after a corresponding bilateral or multilateral request is filed with a foreign competent authority. 7.6 APA User Fees APA user fees must be paid through the Pay.gov web - site. The current fees are as follows. • Small case APAs ‒ USD57,500, applicable where: (a) the controlled group has sales revenue of less than USD500 million in each of its most recent three back years; (b) the value of the proposed covered issue(s) is not expected to exceed USD50 million in any given covered year; (c) the aggregate value of any transferred intan - gible rights is not excepted to exceed USD10 million in any given covered year; and (d) the covered issue(s) do not involve intangible property arising from or related to an intangible development arrangement. • Amendments to an APA ‒ USD24,600. 7.7 Duration of APA Cover • Original APAs ‒ USD121,600. • Renewal APAs ‒ USD65,900. There is no upper limit on the number of years an APA can cover. The APMA generally requires that an APA application cover at least five prospective years. The APMA aims to have at least three prospective years remaining in the APA term upon the execution of the APA. In its most recent Annual APMA Statutory Report, dated 27 March 2025, the term length of APAs executed in 2024 ranged from one year to 15 years and averaged six years.
7.8 Retroactive Effect for APAs As mentioned in 7.5 APA Application Deadlines , an APA can cover prospective years as well as prior (roll - back) years. Typically, a taxpayer requests that an APA cover rollback years, but the APMA may consider a rollback at its discretion even in the absence of a tax - payer’s request. 8. Penalties and Documentation 8.1 Transfer Pricing Penalties and Defences The penalties in transfer pricing cases can be oner - ous and are either 20% or 40% of the amount of the tax underpayment, depending on the degree of non- compliance. In Section 482 cases, penalties most often result from valuation misstatements, but accu - racy-related penalties for understatement of income tax, disregard for rules or regulations, or transactions lacking economic substance can also apply. Penalties do not stack and, as such, the maximum accuracy- related penalty is 40% ‒ except for in instances of fraud, where the penalty can be 75%. Penalties potentially applicable to transfer pricing cases are provided for in Section 6662 and include the following. • Net adjustment penalty ‒ a 20% penalty applies where there is a “substantial valuation misstate - ment”, which occurs when the net Section 482 adjustment exceeds the lesser of USD5 million or 10% of gross receipts. The penalty is increased to 40% if there is a “gross valuation misstatement”, which occurs when the net Section 482 adjustment exceeds the lesser of USD20 million or 20% of gross receipts. • Transactional penalty ‒ a 20% penalty applies where there is a substantial valuation misstate- ment in a transfer price of 200% or more or 50% or less of the arm’s length amount. The penalty is increased to 40% if the transfer price is 400% or more or 25% or less of the arm’s length amount. • Substantial understatement penalty ‒ a 20% penalty applies where the understatement of tax exceeds the lesser of 10% of the tax required to be shown or USD5 million (USD10 million for corpora - tions).
295 CHAMBERS.COM
Powered by FlippingBook