An advance pricing agreement (APA) is an ahead-of-time agreement between a taxpayer and a tax authority on an appropriate transfer pricing methodology (TPM) for a set of transactions at issue over a fixed period of time[1] (called "Covered Transactions").
[3] The taxpayer benefits from such agreements since they are assured that income associated with covered transactions is not subject to double taxation by the IRS and the relevant foreign tax authorities.
It is IRS policy to "encourage" taxpayers to seek bilateral or multilateral APAs where competent-authority provisions exist.
Should the taxpayer be involved in a dispute with a foreign tax administration regarding the covered transactions, they may seek relief by requesting that the U.S. competent authority initiate a mutual agreement proceeding.
One of the APA Program's designated team leaders is responsible for assembling the team, and it will generally consist of an economist, an international examiner, a LMSB field counsel, and—in bi- or multilateral cases—a U.S. competent-authority analyst tasked with leading discussions with treaty partners.