As published on law360.com, Monday 11 May, 2020.
Law360 (May 11, 2020, 7:34 PM EDT) -- The Internal Revenue Service announced Monday that it would accept photographed, scanned or virtual signatures from multinational taxpayers on requests to negotiate international income allocation issues during the novel coronavirus pandemic.
The agency said taxpayers could either send copies of signed documents or send a signature through "encryption techniques" in requests for an advance pricing agreement or to request competent authority relief under an existing agreement.
The announcement follows up on a March memorandum from the IRS deputy commissioner for services and enforcement, Sunita Lough, directing the agency to accept digital signatures in lieu of physical documents as taxpayers and their legal representatives avoid contact with each other to follow health guidelines during the pandemic.
An advance pricing agreement is a negotiated settlement between a U.S. taxpayer and the IRS Advance Pricing and Mutual Agreement program, and sometimes a foreign tax authority, on the pricing of assets that generate income across borders. Under a bilateral advance pricing agreement, a taxpayer can request assistance from the U.S. competent authority to resolve a dispute with a foreign tax administration over potential double taxation. Bilateral agreements are normally negotiated under tax treaties between the U.S. and a trading partner.
The coronavirus pandemic, aside from freezing much of the world's economy, has also raised fears that requirements for in-person negotiations or "wet ink" signature documents will paralyze international tax administrations. A group of European and international banking associations sent a letter to the European Union and the Organization for Economic Cooperation and Development urging countries to void or loosen requirements for physical documents in requests for relief under double tax treaties. The treaties often reduce or eliminate withholding taxes on payments such as interest or royalties.
The IRS also said it is in contact with treaty partners about how the economic turmoil provoked by the pandemic could affect existing advance pricing agreements, which often rely on economic assumptions in their pricing analysis. Advance pricing agreements use the arm's-length standard, the global benchmark that internal transactions between subsidiaries of a corporate group should be priced at what independent parties would have paid.
"With regard to questions about pending and executed APAs, APMA is actively discussing various substantive and procedural issues with treaty partners, including such technical issues as the application of transfer pricing methods in periods of economic distress and the impacts of current economic conditions on specific industries, types of taxpayer, regions, etc.," the IRS said. "Stakeholders wishing to discuss these and other general issues with APMA are asked to contact the appropriate APMA assistant director."
The agency said U.S. taxpayers with questions about existing agreements covering the 2020 tax year should contact their assigned APMA team leader.
The IRS did not respond to requests for further comment.