On February 9, 2018, Jennifer Best, Director of Treaty and Transfer Pricing Operations, U.S. IRS Large Business and International (LB&I) Division, said during a panel event at a mid-year conference sponsored by the American Bar Association Tax Section in San Diego that the IRS intends to take a leading role in the OECD's International Compliance Assurance Program (ICAP) pilot for country-by-country (CbC) report filings. Ms. Best said: "The hope with the pilot program is that participants will be able to identify certain flows that can be removed from the audit process, so it really is a dispute prevention effort from the start."
ICAP Background
The OECD established the ICAP to perform a multilateral risk assessment and assurance process for what the OECD considers non-high-risk multinational enterprise (MNE) groups. ICAP is a voluntary program, which uses CbC reports in its analysis. It focuses on issues such as transfer pricing and permanent establishments (PEs). ICAP's purpose is to provide certainty to MNE groups and assurance to tax authorities. It allows MNEs to engage simultaneously with multiple tax administrations and should result in fewer MAP disputes.
On January 23, 2018, the OECD announced the launch of the ICAP pilot for tax administrations and MNEs.
The ICAP program will allow MNE groups the opportunity to explain the details in their CbC reports, and provide a better understanding of their cross-border activities. Tax administrations can use this information to reach an early decision about the level of transfer pricing risk, PE risk, and other potential specific international tax risks. Following its joint review of CbC reports supplied by an MNE group, tax administrations will coordinate regarding follow-up questions. The MNE group can work simultaneously with the tax administrations (generally, through the tax administration in its headquarter jurisdiction).
The ICAP pilot should ensure a more effective use of transfer pricing information (i.e., a group's CbC report, master file, and local file). It should also provide a more efficient use of resources for the MNE group and tax administrations, leading to fewer mutual agreement procedure (MAP) cases. ICAP has been developed under the framework of the OECD Forum on Tax Administration (FTA) Large Business and International Program, sponsored by the Canada Revenue Agency (CRA).
A pilot for ICAP, which includes eight FTA member tax administrations (Australia, Canada, Italy, Japan, the Netherlands, Spain, the U.K., and the U.S.), launched on January 23rd at a participant orientation event, introduced by David Kautter, Acting Commissioner of the U.S. IRS, and Bob Hamilton, Commissioner of the CRA. A multilateral assessment of specific international tax risks posed by each MNE group will begin during the first half of 2018, and is expected to be completed within 12 months.
A handbook providing additional details on ICAP, as well as the procedure for the pilot, was provided during the January 23rd event.
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