WASHINGTON, March 25 (Reuters) - Japan was the most frequent partner with the United States in 2012 in completing agreements on taxation of cross-border ‘transfer pricing’ deals for corporations doing business in both countries, the Internal Revenue Service said on Monday.
Known as “advance pricing agreements,” or APAs, the agreements are designed to give businesses more certainty on their tax obligations and thus can help avoid multi-million-dollar tax disputes between companies and government tax collectors.
Multinational companies routinely move assets into low-tax countries from high-tax countries to reduce their tax bills. Valuing the assets involved in these ‘transfer pricing’ transactions can be complicated.
An APA is a multi-year agreement between the IRS and a company on transfer-pricing taxes. Businesses like them because they offer tax certainty in both countries. The IRS received 101 applications for bilateral APAs last year.
For the first time in its annual APA report, the IRS listed the countries with which it concluded the most APAs during the year. The IRS does not identify companies that sign APAs. But companies sometimes disclose them in regulatory filings.
Companies that have disclosed APAs, for example, include drugmaker AstraZeneca PLC and software group Oracle Corp . GlaxoSmithKline PLC in February disclosed it signed a bilateral APA with the United States and the UK.
Of 103 bilateral APAs completed in 2012, 53 percent were signed with Japan; 16 percent with Canada; and 10 percent with the UK. Other countries accounted for the rest.
The IRS also signs unilateral APAs directly with companies and did 37 of them last year, for a total APA tally of 140 in 2012. Only 46 APAs were signed in 2011.