H.R. 2378: confidentiality of advance pricing agreements.

July 12, 1999

On July 12, 1999, Tax Executives Institute submitted the following comments to the House Committee on Ways and means concerning the confidentiality of advance pricing agreements.

On behalf of Tax Executives Institute, I am writing to support H.R. 2378, which would preserve the confidentiality of advance pricing agreements (APAs) and background documents related to APAs. TEI urges that the substance of H.R. 2378 be included in the tax bill that the Ways and Means Committee will be crafting in the next few weeks.

The advance pricing agreement program is designed to forestall contentious and expensive transfer pricing disputes between taxpayers and the Internal Revenue Service. A voluntary venture, the APA program represents one of the IRS's success stories of the 1990s, for it furthers the goals of reducing taxpayer burdens and minimizing disputes between the IRS and taxpayers.

Each APA specifies a methodology negotiated between the specific taxpayer and the IRS (and, at times, one or more foreign countries) for the taxpayer to use in determining its intercompany pricing and thereby ensure compliance with section 482 of the Internal Revenue Code. The information set forth in an APA is highly fact specific and involves sensitive financial and commercial information. Almost 200 APAs have been negotiated since the program began in 1991 and the program is a model for minimizing double taxation of income and settling costly transfer pricing disputes before they occur. By reducing taxpayer burdens and enhancing taxpayer certainty, the APA program strengthens the competitiveness of participating U.S. businesses and facilitates the more efficient use of IRS resources.

H.R. 2378 would confirm that the APAs and their supporting documentation will be treated as confidential tax return information pursuant to section 6103 of the Code. The bill thus rejects the argument that APAs are subject to disclosure under section 6110 of the Code. This concession marked a radical change in IRS policy in respect of taxpayer privacy, which lies at the core of section 6103. Since the inception of the APA program until January 8 of this year, the IRS treated the APAs and APA background files as protected tax return information. (Indeed, the IRS provided taxpayers with explicit assurances that the submitted information would be kept confidential.) On January 8, 1999 -- in conjunction with a suit filed under the Freedom of Information Act -- the IRS notified...