Peter Barnes Discusses Increase in Closed IRS Advance Pricing Agreements with Law360

A recent Internal Revenue Service report showed an increase in closed advance pricing agreements in 2017 from the year before, a welcome development for agency officials as well as taxpayers hoping the program will continue to provide tax certainty in an increasingly uncertain international environment, even though the vast majority of cases went down well-trodden paths.

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"It's always been a challenge, and continues to be, for the IRS to make sure it doesn't get sucked into APA requests for transfer pricing issues that are not the biggest for them. You can suck up the time of the APA staff pretty quickly with issues that really don't have big risks," said Peter Barnes,, a professor of tax law at Duke University School of Law and a former tax counsel for General Electric. "They need to take on the biggest cases as they view them, not as taxpayers wishing certainty view them."

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"It's unfortunate that so much of it is Canada and Japan. India's better than it used to be, but there's not much with China, which is where I think there's going to be growth in the future with disputes," Barnes said.

Barnes noted that Japan's 29.7 percent corporate tax rate, which Japanese lawmakers hope to effectively reduce to as low as 20 percent, is roughly comparable to the 2017 U.S. corporate tax rate of 35 percent and the new rate of 21 percent.

"Those are not the cases, I think, where the IRS has a whole lot at stake, because those are not cases where the taxpayer is potentially putting money in a very low-tax jurisdiction," Barnes said.

Mr. Barnes is also Of Counsel to Caplin & Drysdale’s International Tax and Tax Controversies practice groups.

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Excerpt taken from the article “US Advance Pricing Agreement Data Show Cos. Playing It Safe” by Alex M. Parker for Law360.