APAs executed in great volume and less time
Overall, APMA had another successful year in negotiating and resolving APAs with taxpayers and treaty partners alike. While the number of executed APAs decreased slightly from 156 in 2023 to 142 in 2024, this figure remained higher than the number of APAs executed on an annual basis during each of 2014-2022 and is indicative of the continued efforts undertaken by APMA to improve the efficient and timely resolution of cases. Notably, the highest number of multilateral APAs were executed during 2024 (10) since APMA began releasing APA data in 1991, demonstrating an interest among both taxpayers and tax administrations to resolve complex transfer pricing cases with multiple countries where possible.
Similar to previous years, India (29%) and Japan (23%) accounted for the majority of the executed bilateral APAs (BAPAs). The successful resolution of India BAPAs, in particular, is the result of the treaty partners' collaborative diligence in reducing APA inventory, particularly for cases involving similar services through the use of agreed-upon comparable sets for certain routine transactions. This is also evidenced by India's recently released APA statistics, which show that during the financial year ended March 31, 2015, India executed its highest number of APAs yet (174), 65 of which were BAPAs.
In addition to maintaining a high level of APA closures, APMA reduced its execution time. In particular, the median completion time for all APAs decreased significantly from 42.0 months in 2023 to 33.5 months in 2024, closer to the average time in 2021 and 2020. APMA's median completion time for bilateral APAs likewise decreased from 42.6 months in 2023 to 34.8 months in 2024, which was also below the average APA completion time of 36.8 months reported by 46 jurisdictions in the OECD's 2023 APA statistics. This achievement was likely facilitated by the increase in APMA's staffing from 114 to 126 members during 2024, including three assistant directors, 12 managers, 76 team leaders (up from 70) and 35 economists (up from 29). Such reinforcement allowed APMA to distribute the increased workload resulting from the continued influx of filings across additional teams and to close cases in a timelier manner. It also reflects APMA's concerted efforts to improve efficiency, including by working closely with taxpayers to better negotiate and finalize cases.
Similar to prior years, the majority (56%) of the APAs executed in 2024 involved transactions between non-US parents and US subsidiaries. As in 2023, no APAs were revoked or cancelled during 2024, though 17 APA requests were withdrawn.
Demand for APAs continues to be significant
Taxpayers filed 169 complete APA applications in 2024, similar to the prior year's 167, and with 42 additional user fee filings, the number of total filings in 2024 surpassed those made in 2023. The vast majority of the APA applications continued to be made on a bilateral basis (142 of the total 169 applications or 84%), which aligns with APMA's preference to handle APAs on a bilateral (or multilateral) basis. Additionally, the number of unilateral and multilateral requests remained relatively stable compared to prior years, with APMA receiving 21 unilateral and six multilateral applications in 2024, compared to 17 unilateral and six multilateral applications in 2023.
Companies that have enjoyed tax certainty under the original APAs increasingly return to APMA, seeking to extend such benefit to additional years. This is reflected in the percentage of renewal APAs executed in 2024, which increased to 58% of all APAs executed in 2024, as compared to 47% of all APAs executed in 2023. Pending APAs also show a similar demand for renewal APAs, which accounted for 48% of the total applications.
The number of pending APAs increased slightly, remaining at the highest level over the last decade and demonstrating a continued need for APMA to resolve outstanding transfer pricing (TP) cases. Consistent with prior years, half of the pending bilateral APAs are with Japan (28%) and India (22%), followed by Canada (13%).
APAs continue to be popular across industries, particularly manufacturing and wholesale/retail trade industries
This year's APA statistics exhibit the broad appeal of APAs across industries. Manufacturing and wholesale/retail trade industries continued to make up the majority of APAs executed in 2024, with 30% and 27% of the APAs, respectively. Other industries comprised a similar percentage of APAs as those executed during 2023, with the services industry representing 20% of executed APAs (up from 17% in 2023), the management industry representing 11% of executed APAs (down from 12% in 2023), the finance, insurance, and real estate industry representing 8% of executed APAs (up from 6% in 2023), and all other industries comprising the remaining 4% of executed APAs.
Of the manufacturing APAs executed in 2024, 31% were related to transportation equipment manufacturing, 24% to computer and electronic product manufacturing, 17% to chemical manufacturing, 17% to miscellaneous manufacturing, and 12% to all other manufacturing. Of the wholesale/retail trade APAs executed in 2024, the majority continued to be within the merchant wholesales/durable goods industry (54%), followed by merchant wholesales/nondurable goods (23%), clothing and clothing accessories stores (10%), and all others (13%).
The majority of executed APAs covered transactions involving various functions and risks, including research and development, design and engineering, manufacturing, marketing and distribution, and support functions. Similar to the prior year, the Annual Report highlights that a significant amount of time in the APA process is dedicated to understanding the allocation of functions and risks among the covered parties. Thus, taxpayers can help to streamline the APA process by clearly delineating the allocation of functions, assets, and risks between the covered parties in the APA request.
The most common covered transactions of APAs executed in 2024 involved either the provision of services (representing 43% of covered transactions) or the sale of tangible property (33% of covered transactions), with the majority of tested parties being US distributors (39%), US manufacturers (12%) or non-US service providers (31%).
On December 18, 2024, Treasury published Notice 2025-04, allowing taxpayers to apply Amount B under Pillar 1 to price certain controlled transactions involving baseline distribution and marketing activities (see our recent alert here). Amount B, now known as the simplified and streamlined approach (SSA), could potentially streamline TP for baseline marketing and distribution transactions, alleviating the overall burden on APMA and allowing the APA program to focus more on complex transactions. However, the risk of double taxation, and therefore, the need for a negotiated resolution, may remain where the US taxpayer has elected to apply the SSA but the distributor country has not adopted the SSA or applies the SSA only with respect to certain jurisdictions not including the United States.
In addition, the 2024 statistics demonstrate that APAs continue to be an effective tool for addressing intangible property transactions, with 22% (up from 18% in 2023) of covered transactions involving the use of intangible property. APMA again highlighted that these intangible property transactions tend to be the most challenging in APMA's inventory.
Comparable profits method/transactional net margin method continues to dominate
For 2024, the comparable profits method/transactional net margin method (CPM/TNMM) continued to be the most commonly applied transfer pricing method (TPM) for tangible and intangible property transactions (applied to 78% of such transactions). The operating margin (i.e., the ratio of operating profit to sales) likewise continued to be the most common profit level indicator (PLI) used to benchmark results. The operating margin was used as a PLI in 72% of the executed APAs, while other PLIs, including the Berry Ratio (i.e., the ratio of gross profit to operating expenses) and return on total costs, comprised the remaining 28%.
For services transactions, a majority (91%) of APAs also used the CPM/TNMM as the TPM, with the operating margin and operating profit to operating expense being the most common PLIs (used 67% of the time).
Most covered transactions targeted an interquartile range, a point within the interquartile range, or another targeted arm's length range, whereas both specific royalty rates and ranges were used for transactions involving a royalty payment for the use of intangible property. Similar to prior years, the APAs executed in 2024 included testing periods for a single year, the term of the APA, or the term of the APA plus rollback years.
APA terms maintain a reasonable amount of prospectivity
APA term lengths, including rollback years, continued to average six years in 2024 (consistent with 2020-2023), with the largest number of APAs executed having a five-year term (nearly 39% of the total). Around 89% of the APAs executed in 2024 had terms of five or more years, with total terms ranging from one year to 15 years. Of the APAs executed in 2024, 28% included rollback years.
Future outlook
APMA's 2024 APA statistics demonstrate that APAs continue to provide significant benefits to taxpayers seeking tax certainty in an environment marked by aggressive and costly audit activities worldwide. As a result of the significant investments made by APMA and other tax authorities to bolster the APA process, reduce completion times, and enhance case management tools, APAs should be an even more attractive dispute prevention tool for taxpayers. While APAs continue to be resource intensive, APMA's efforts to improve efficiency and reduce execution time help lower the overall costs of seeking an APA for many taxpayers.
Despite the positive developments reported for 2024, the current uncertainty and global political environment may lead to potential challenges. Because of the Department of Government Efficiency-led terminations, several probationary employees at APMA were terminated and additional cuts are anticipated. This significant headcount reduction likely will impact APMA's ability to efficiently process and execute APAs, possibly forcing APMA to become more selective and accept fewer APA requests due to resulting resource constraints. This could negatively affect taxpayers desiring to address significant TP issues through a transparent and collaborative program.
Recently announced retaliatory tariffs may also create additional challenges – and opportunities – for taxpayers seeking APAs. These broad tariffs may impact APMA's workload and its relationship and negotiations with treaty partners as tariffs increase the potential for double taxation and the risk of dispute – particularly where tax authorities have differing views on which related party should bear/share the burden. The White House's ongoing review of the US-China tax treaty adds an extra layer of complications for many taxpayers interested in pursuing bilateral dispute resolution on issues with China.
Tariffs could also prompt some taxpayers to revise their intercompany pricing to reduce the impact of tariffs, to the extent these costs are not fully passed onto customers. In such a case, the APA program may be a desirable forum in which to affirmatively discuss and resolve changes to intercompany prices to address the impact of tariffs on a bilateral or multilateral basis. Companies seeking to mitigate audit risk should therefore consider utilizing APAs to obtain tax certainty related to the impact of tariffs as APMA will work with treaty partners to reach negotiated resolutions on these complex issues.
With these challenges and opportunities in mind, along with the continued heightened risk of significant TP disputes, we are hopeful that APMA will continue to have the resources needed to help taxpayers manage and resolve both TP issues upfront through APAs and TP and other treaty-related issues on the backend through the mutual agreement procedure (MAP). The APA program is at least partially self-funded via the APA user fees and demand from taxpayers has been robust despite recent user fee increases. In addition to APAs, APMA also plays a critical role in resolving double taxation through MAP, thus further emphasizing the importance of a strong APMA program. Most of the MAP cases originate from foreign-initiated audit adjustments (primarily in India, Canada, Germany, the United Kingdom, Spain, Mexico, Italy, and South Korea). Despite the significant improvement in timeliness in resolving MAP cases, many cases (618 in total, 401 for transfer pricing and 217 for other cases) still remained in APMA's inventory at the end of 2023. Considering the significant number of new and outstanding APA requests along with the significant existing inventory of MAP cases, a robust APMA program continues to be essential to addressing taxpayers' need for effective and efficient ways to resolve double taxation and other international tax controversies.
Given the rising number of high-stakes TP litigation in the United States and beyond, APAs offer taxpayers the ability to proactively manage their TP disputes and achieve certainty for high-value and/or complex intercompany transactions, while minimizing the risk of penalties and protracted, resource-intensive disputes in multiple jurisdictions. APMA's successes, as demonstrated through the 2024 APA statistics, substantiate that the APA process continues to be a desired and excellent forum to proactively achieve certainty on TP issues on a bilateral and multilateral basis, while engaging with tax authorities in a transparent and collaborative process.
1 A modified and abbreviated version of this article was published by Bloomberg Tax on April 23, 2025 at IRS's Successful APA Program Faces New Obstacles, Opportunities.
