Executive summary: 2022 APA statistics now available
On March 27, 2023, the Advance Pricing and Mutual Agreement (APMA) Program issued their annual Announcement and Reporting Concerning Advance Pricing Agreements (APAs) for 2022.
APMA issues annual APA report
The annual Announcement and Reporting Concerning APAs for 2022 is the twenty-fourth report of its kind issued by APMA. Each annual report provides statistical data and general descriptions with respect to APA applications filed and executed during the previous calendar year, as well as the structure, composition and operation of the APMA Program.
As multinational corporations seek to gain certainty with respect to their worldwide transfer pricing policies, the demand for APAs continues to grow. APAs are agreements that allow taxpayers to preemptively agree with one or more tax authorities on arm’s-length prices for related-party transactions. An executed APA determines the best transfer pricing methodology and agrees upon results that satisfy the arm’s-length standard. Generally, an APA covers a 5-year prospective term.
APA Applications Continue to Grow
During 2022, a total of 1831 APA applications were filed, representing a growth of approximately 26% (from 145 APA applications filed in 2021). This continues to expand on the approximately 20% growth in APA applications filed between 2021 and 2020, in which 121 APA applications were filed. Consistent with prior years, the majority of the APA applications filed during 2022 were bilateral. The key countries for bilateral APA applications during 2022 were Japan (29%), India (14%), Canada (11%) and Korea (10%).
In terms of industry, wholesale/retail trade and manufacturing continue to lead with respect to executed APAs, constituting over 80%. Across all industries, the most common intercompany transactions to be covered in an executed APA are the sale of tangible goods and the provision of services, totaling approximately 76% of transactions during 2022. In addition, intercompany transactions involving the use of intangible property constituted approximately 22% of intercompany transactions in APAs executed during 2022. APMA has noted in recent years that intangible transactions “can be among the most challenging transactions in APMA’s inventory.” 2
As of Dec. 31, 2022, the APMA Program included 3 assistant directors, 9 managers, 26 economists and 59 team leaders to manage the growing number of APA applications. During 2022, a total of 77 APAs were executed, leaving 564 pending APAs as of Dec. 31, 2022. Of the 564 pending APAs, 237 were renewals. Along with rising case load, the median time to execute an APA also rose to 43.4 months in 2022 (from 35.1 months in 2021 and 32.7 months in 2020). However, the median time to execute a renewal APA declined to 28.3 months (as compared to 30.9 months in 2021 and 29.6 months in 2020).
Despite the rising completion time, APAs continue to offer a proactive approach for taxpayers to gain greater certainty regarding tax exposure and mitigate costs associated with the preparation of transfer pricing documentation and audit defense. In recent years, taxpayers have increasingly utilized APAs as the preferred transfer pricing dispute mechanism as they provide taxpayers with a non-adversarial alternative and proactive process to resolve transfer pricing disputes.