The annual Announcement and Reporting Concerning APAs for 2023 is the 25th 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 remains high. 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 remain high
During 2023, a total of 1671 APA applications were filed, representing a decrease of approximately 9% (from 183 APA applications filed in 2022). While the number of APA applications remained high, this decrease is in contrast to the approximately 20-25% growth in APA applications filed each year between 2020 and 2022, in which 121, 145 and 183 APA applications were filed, respectively. Consistent with prior years, the majority of the APA applications filed during 2023 were bilateral. The key countries for bilateral APA applications during 2023 were Japan (30%), India (21%), Canada (14%) and Italy (8%).
A record number of APAs executed in 2023
As of Dec. 31, 2023, the APMA Program included 3 assistant directors, 12 managers, 29 economists and 70 team leaders to manage the large number of APA applications. During 2023, a total of 156 APAs were executed, leaving 558 pending APAs as of Dec. 31, 2023. The number of executed APAs in 2023 is over double those executed in 2022 and sets the record for the highest number of APAs executed in one year. Of the 558 pending APAs, 252 were renewals. The median time to execute an APA decreased to 42.0 months in 2023 (from 43.4 months in 2022). However, this timeline is still greater than other recent years (35.1 months in 2021 and 32.7 months in 2020).
In terms of industry, wholesale/retail trade and manufacturing continue to lead with respect to executed APAs, constituting over 60%. 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 80% of transactions during 2023. In addition, intercompany transactions involving the use of intangible property constituted approximately 18% of intercompany transactions in APAs executed during 2023. APMA has noted in recent years that intangible transactions “can be among the most challenging transactions in APMA’s inventory.”2
Conclusion
As evidenced by the record number of APAs executed in 2023, 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.
1 In addition to the 167 complete APA applications, 22 user fee filings were received by APMA for APAs yet to be filed.
2 Announcement and Report Concerning Advance Pricing Agreements, March 26, 2024.
