The Pre-Price Agreement (APA) is a advance notice that gives companies legal certainty regarding their future transactions between two related companies. The Mutual Agreement Procedure (MAP), which is independent of internal remedies, aims to resolve situations of double taxation or situations in which taxation does not comply with a bilateral tax treaty. The APA programme proposes a voluntary process of settlement in principle and cooperation of real or potential transfer pricing disputes as an alternative to the traditional review procedure. The 2015-41 revenue procedure requires an APP submission to contain important financial information to facilitate analysis of the duration of consideration paid or received by APMA. Requirements include: (i) the estimated dollar value of the transactions covered during the proposed APA years; (ii) the synthesis of the methods covered (by transaction), including the proposed interquaartile range, the profit and loss account and the balance sheet of the comparable transaction; (iii) proof of the proposed transfer pricing method for covered transactions; and (iv) the application of the APA financial model (profit and loss account and balance sheet) to the controlled party, etc. In October 1999, the OECD published an update of the OECD guidelines on clearing prices for multinational companies and tax administrations in 1995 (the so-called «guidelines»). This update takes the form of a new schedule to the guidelines, which contains guidelines for the implementation of ex ante price agreements as part of the Mutual Agreement Procedure (MAP-APAs). The annex is an integral part of the guidelines, as evidenced by the OECD Council`s decision of 28 October to amend its original recommendation on the 1995 guidelines to include the new guidelines in this annex. It therefore has the same status as the eight existing chapters of the guidelines. On February 26, 2019, the U.S. Advance Pricing and Mutual Agreement Program (APMA) released an Excel-based financial model that intends to use the program to review certain applications from the Advance Pricing Agreement (APA). The stated objective of the model is to enable the Internal Revenue Service (IRS) to «better understand the contributions of controlled taxpayers to proposed secure transactions, including the respective contributions of each subject controlled to the exercise of the significant economic risks associated with proposed secure transactions.» 1 To this end, the Functional Cost Diagnostic Model (FCD MODEL) records, identifies, organizes and analyzes the costs incurred by each controlled subject for covered transactions. A fraction of the loss is then calculated.
APMA compares the results of the pro forma profit portion to the results obtained under the proposed transfer pricing method at the taxpayer`s request. APMA assures taxpayers that they will only use the CDF model for diagnostic purposes in limited circumstances, and its application does not mean that the sharing of remaining benefits is necessarily the «most appropriate method» for covered transactions, in accordance with Organisation for Economic Co-operation and Development (OECD) guidelines.