IRS Provides New Guidance for Competent Authority... | KPMG | CA

IRS Provides New Guidance for Competent Authority Requests

IRS Provides New Guidance for Competent Authority...

Global Tax Adviser, September 29, 2015. Rob Davis, GTA, Transfer Pricing, Maria Cherkasova, GTA, Transfer Pricing, The IRS recently released new guidance on the process for taxpayers to file a competent authority request. The final guidance reflects certain modifications made in response to the public comments received by the IRS with principal modifications relating to improving the clarity and increasing transparency of the competent authority process. The guidance was initially issued in draft for public commentary in 2013.

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Guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. Competent Authority is contained in Revenue Procedure 2015-40. The final guidance modifies procedures set forth by the IRS in 2006 and will apply to all requests for competent authority assistance filed on or after October 30, 2015.

Taxpayer-initiated positions

The new competent authority procedures specifically allow assistance for taxpayer-initiated adjustments. Any competent authority request that involves a taxpayer-initiated adjustment must follow the mandatory pre-filing procedures specified in the new procedures. 

Scope and documentation requirements

Depending on the facts and circumstances, the U.S. Competent Authority can request an expansion of the competent authority scope under the new procedures to include interrelated issues if it determines that the resolution under the existing scope will not be consistent with principled, effective and efficient tax administration. 

Additionally, the new competent authority procedures significantly increase the amount of information that must initially be submitted to the U.S. Competent Authority. For example, though not mandatory, the U.S. Competent Authority now recommends that taxpayers seek a pre-filing conference for material foreign-initiated adjustments and requests that involve the license or transfer of intangibles, a global trading arrangement, unincorporated branches, pass-through entities, hybrid entities or disregarded entities. 

Taxpayer acceptance

Once the U.S. Competent Authority conveys the tentative resolution to the taxpayer in writing, under the new procedures the taxpayer must then advise the U.S. Competent Authority that they accept the competent authority resolution. If the taxpayer does not accept the tentative competent authority resolution within a certain time period, the US Competent Authority may close the case. 

Other changes

This procedure also:

  • Provides additional guidance on requesting discretionary determinations under the limitation on benefits (LOB) articles of U.S. tax treaties
  • Provides that the U.S. Competent Authority will not make assistance conditional on the taxpayer's notification of the Authority, or on obtaining its concurrence, in signing a standard Form 870 with IRS Examination 
  • Limits competent authority assistance to seeking correlative relief from the foreign competent authority, thus potentially not eliminating double taxation if the U.S. competent authority agreement is not obtained prior to entering into a closing agreement with IRS Examination
  • Provides additional information about the process followed by the U.S. Competent Authority in conducting its review under the simultaneous appeals procedure
  • Clarifies and refines the bases on which the U.S. Competent Authority may decline to accept a competent authority request or may cease providing assistance
  • Increases the user fee for requests for discretionary LOB relief. 

For more information, contact your KPMG adviser. 

Disclaimer

Information is current to September 29, 2015. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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