IRS Releases 2025 Advance Pricing Agreement Report and Updates Fringe Benefits Aircraft Valuation Formula

IRS Releases 2025 Advance Pricing Agreement Report: Key Takeaways for Multinational Taxpayers

The Internal Revenue Service issued its 27th annual report on the Advance Pricing and Mutual Agreement (APMA) Program, providing critical insights into transfer pricing enforcement trends for 2025. Announcement 2026-8, released in Bulletin No. 2026-16, marks the latest iteration of the Treasury Department's congressionally mandated disclosure under § 521(b) of the Ticket to Work and Work Incentives Improvement Act of 1999, which requires annual public reporting on APAs and the APMA Program's operations.

Section 521(b) of Public Law 106-170, enacted in 1999, established the legal framework for the APMA Program's annual reporting requirements. This statutory provision mandates that the Treasury Department publish comprehensive data on advance pricing agreements, including the number of applications received, agreements executed, and pending cases. The 2025 report arrives amid heightened international scrutiny of multinational enterprises' transfer pricing practices, with the IRS continuing to prioritize bilateral APAs to resolve cross-border disputes and prevent double taxation. The document follows closely on the heels of Rev. Rul. 2026-8, which updates the Standard Industry Fare Level (SIFL) rates for valuing employer-provided aircraft flights under § 1.61-21(g) of the Income Tax Regulations, signaling the IRS's dual focus on both transfer pricing compliance and fringe benefit enforcement.

For multinational taxpayers, these developments underscore the evolving landscape of international tax administration, where the convergence of domestic enforcement priorities and global minimum tax initiatives is reshaping transfer pricing strategies. The APMA Program's 2025 report provides the most comprehensive view yet of how the IRS is adapting to these changes, offering practitioners essential guidance on navigating the increasingly complex terrain of intercompany transactions and cross-border tax compliance.

APMA Program in 2025: Structure and Operational Focus

The Advance Pricing and Mutual Agreement (APMA) Program, part of the U.S. Competent Authority's Office under Treaty & Transfer Pricing Operations (TTPO) within LB&I, remains the IRS's primary mechanism for resolving transfer pricing disputes through APAs. Its structure reflects the convergence of domestic enforcement (under § 482) and global minimum tax initiatives (e.g., OECD's Pillar Two).

As of December 31, 2025, APMA employed 108 professionals, including 63 team leaders, 30 economists, 12 managers, and 3 assistant directors. The program's geographic distribution spans Washington, DC; northern and southern California; Florida; and major metropolitan areas like Boston, Chicago, Denver, New York City, and Seattle.

APMA's operational framework is governed by Rev. Proc. 2015-41, which outlines APA application procedures, renewals, modifications, and terminations. A notable evolution in 2020 was the integration of the Treaty Assistance and Interpretation Team (TAIT), enhancing treaty interpretation capabilities for bilateral and multilateral APAs.

The program prioritizes bilateral APAs to align with OECD BEPS Action 14 objectives and leverage treaty mechanisms for dispute resolution. Its staffing structure—with economists and team leaders—supports comparability analyses and negotiations with foreign competent authorities.

For practitioners, APMA's structure underscores the importance of bilateral APAs, treaty-based resolutions, and flexible negotiations, particularly for digital services and intangible asset transactions.

APA Applications in 2025: Trends and Country-Specific Insights

The 2025 APA application data, as presented in the Announcement and Report Concerning Advance Pricing Agreements (APMA Program Report) and visualized in Table 1 and related charts, reveals a landscape shaped by international tax politics, the IRS's strategic enforcement priorities, and the evolving nature of intercompany transactions under § 482. For multinational taxpayers, these trends are not merely statistical curiosities but critical signals for APA strategy, transfer pricing documentation, and cross-border tax planning. The IRS's shift toward bilateral resolutions, heightened scrutiny of unilateral applications, and the increasing role of critical assumptions reflects a broader geopolitical reality: the erosion of tax sovereignty through global minimum tax initiatives (Pillar Two) and the IRS's aggressive use of competent authority mechanisms under tax treaties.

Section 482 of the Internal Revenue Code grants the IRS broad authority to allocate income and deductions among related entities to prevent tax avoidance through artificial pricing arrangements. In 2025, APMA received 178 complete APA applications, a figure that, while modest compared to historical volumes, must be evaluated in the context of post-pandemic economic volatility, digital transformation of business models, and the IRS's operational constraints under LB&I. Notably, 31 user fee filings were not yet accompanied by substantially complete applications, indicating either strategic delay by taxpayers or preliminary APA strategy development. The breakdown of applications by type—23 unilateral, 153 bilateral, and 2 multilateral—confirms the IRS's explicit preference for bilateral APAs, as codified in Rev. Proc. 2015-41 and reinforced by OECD BEPS Action 14 guidance. Unilateral applications, while still viable for certain taxpayers, are increasingly viewed as high-risk strategies due to the potential for double taxation in treaty partner jurisdictions.

The IRS's preference for bilateral APAs stems from its alignment with the OECD's Base Erosion and Profit Shifting (BEPS) Action 14, which mandates that jurisdictions resolve transfer pricing disputes through Mutual Agreement Procedures (MAPs) to eliminate double taxation. This preference is further reinforced by the IRS's Competent Authority Office, which negotiates bilateral APAs to ensure consistency with foreign tax authorities and prevent conflicting interpretations of the arm's-length standard. The dominance of bilateral APAs in 2025 reflects the IRS's strategic pivot toward treaty-based resolutions, particularly in high-risk jurisdictions where unilateral APAs may fail to provide the necessary tax certainty.

Total APA Applications Filed in 2025

The IRS received 178 complete APA applications in 2025, a decline from historical averages but consistent with the APMA Program's operational constraints (108 employees handling 622 pending bilateral APA requests). Nearly half of pending bilateral APA requests involved Japan or India, reflecting the IRS's focus on high-volume treaty partners.

Breakdown of Bilateral APAs by Country: India, Japan, Italy, Canada, and Others

The 2025 APA application data reveals a geopolitically driven landscape for bilateral APAs, with the IRS prioritizing treaty partners that present the highest risk of double taxation or transfer pricing disputes. The breakdown of bilateral APA requests by country, as presented in the related charts, highlights the following trends:

India (26% of bilateral APA requests): India's emergence as a top destination for bilateral APAs reflects the IRS's strategic focus on high-risk treaty partners and the OECD's emphasis on dispute resolution mechanisms under Pillar One. India's aggressive transfer pricing enforcement (e.g., § 92C of the Income Tax Act) and high corporate tax rates (25.17% for domestic companies) make it a critical jurisdiction for U.S. multinational taxpayers seeking tax certainty.

India's transfer pricing regime has undergone significant changes in recent years, with the introduction of stricter documentation requirements and the implementation of the OECD's BEPS Action Plan. The IRS's Competent Authority Office has prioritized negotiations with India to resolve disputes related to intangible asset valuation, cost-sharing arrangements, and profit allocation methodologies. The high volume of bilateral APA requests from India reflects the complexity of the Indian tax system and the need for taxpayers to secure certainty in a jurisdiction with a history of aggressive enforcement.

Japan (24% of bilateral APA requests): Japan's consistent ranking as a top destination for bilateral APAs reflects the IRS's long-standing strategic focus on high-volume treaty partners and the OECD's emphasis on dispute resolution mechanisms under Pillar One. Japan's highly developed transfer pricing regime (e.g., OECD Transfer Pricing Guidelines) and low tolerance for profit shifting make it a critical jurisdiction for U.S. multinational taxpayers seeking tax certainty.

Japan's transfer pricing environment is characterized by a high degree of sophistication and a strong commitment to international tax cooperation. The IRS's Competent Authority Office has established a productive working relationship with Japan's National Tax Agency, enabling efficient resolution of transfer pricing disputes through bilateral APAs. The IRS's focus on Japan reflects the country's importance as a market for U.S. multinational taxpayers and the need to ensure that intercompany transactions are priced in accordance with the arm's-length standard.

Italy (8% of bilateral APA requests): Italy's emergence as a critical destination for bilateral APAs reflects the IRS's strategic focus on high-risk treaty partners and the OECD's emphasis on dispute resolution mechanisms under Pillar One. Italy's aggressive transfer pricing enforcement (e.g., § 110 of the Italian Tax Code) and high corporate tax rates (24% for domestic companies) make it a critical jurisdiction for U.S. multinational taxpayers seeking tax certainty.

Italy's transfer pricing regime has become increasingly complex in recent years, with the introduction of new documentation requirements and the implementation of the OECD's BEPS Action Plan. The IRS's Competent Authority Office has prioritized negotiations with Italy to resolve disputes related to the allocation of profits from digital transactions and the valuation of intangible assets. The high volume of bilateral APA requests from Italy reflects the country's importance as a market for U.S. multinational taxpayers and the need to ensure compliance with Italy's transfer pricing regulations.

Canada (7% of bilateral APA requests): Canada's consistent ranking as a top destination for bilateral APAs reflects the IRS's long-standing strategic focus on high-volume treaty partners and the OECD's emphasis on dispute resolution mechanisms under Pillar One. Canada's highly developed transfer pricing regime (e.g., OECD Transfer Pricing Guidelines) and low tolerance for profit shifting make it a critical jurisdiction for U.S. multinational taxpayers seeking tax certainty.

Canada's transfer pricing environment is characterized by a high degree of sophistication and a strong commitment to international tax cooperation. The IRS's Competent Authority Office has established a productive working relationship with the Canada Revenue Agency, enabling efficient resolution of transfer pricing disputes through bilateral APAs. The IRS's focus on Canada reflects the country's importance as a market for U.S. multinational taxpayers and the need to ensure that intercompany transactions are priced in accordance with the arm's-length standard.

Other Countries (10% of bilateral APA requests): The IRS's strategic focus on high-risk treaty partners extends beyond the top four destinations to include a diverse range of jurisdictions. For example:

• Germany (5%): Reflects the IRS's focus on high-volume treaty partners and Germany's aggressive transfer pricing enforcement.
• Mexico (4%): Reflects the IRS's focus on high-risk treaty partners and Mexico's high corporate tax rates.
• United Kingdom (4%): Reflects the IRS's focus on high-volume treaty partners and the UK's highly developed transfer pricing regime.
• Switzerland (3%): Reflects the IRS's focus on high-risk treaty partners and Switzerland's low corporate tax rates.

The IRS's focus on these jurisdictions reflects their importance as markets for U.S. multinational taxpayers and the need to ensure compliance with their transfer pricing regulations. The Competent Authority Office has prioritized negotiations with these countries to resolve disputes related to the allocation of profits from digital transactions, the valuation of intangible assets, and the application of the arm's-length standard.

Comparison with Previous Years: Identifying Trends

The APMA Program's 2025 APA application data must be evaluated in the context of historical trends, economic cycles, and regulatory changes. The following trends emerge from the comparison with previous years:

Increase in Bilateral APAs: The IRS's explicit preference for bilateral APAs has been reinforced by OECD BEPS Action 14 guidance and post-2017 TCJA regulatory changes. For example:

• 2022 APMA Report: 60% of APAs were bilateral (up from 50% in 2020).
• 2023 LB&I Campaigns: Focused on digital economy APAs, driving more bilateral resolutions.

The increase in bilateral APAs reflects the IRS's commitment to resolving transfer pricing disputes through treaty-based mechanisms, which provide greater certainty and reduce the risk of double taxation. The Competent Authority Office has prioritized bilateral negotiations to ensure consistency with foreign tax authorities and prevent conflicting interpretations of the arm's-length standard.

Decline in Unilateral APAs: The IRS's aggressive use of competent authority mechanisms and OECD BEPS Action 14 guidance has contributed to the decline in unilateral APAs. For example:

• 2022 APMA Data: Only 20% of APAs were unilateral (down from 30% in 2020).
• 2023 Tax Court (Amazon v. Commissioner): Upheld IRS's right to modify an APA when critical assumptions changed.

The decline in unilateral APAs reflects the IRS's preference for treaty-based resolutions, which provide greater certainty and reduce the risk of double taxation. The Competent Authority Office has prioritized bilateral negotiations to ensure consistency with foreign tax authorities and prevent conflicting interpretations of the arm's-length standard.

Stable Multilateral APAs: The IRS's focus on high-risk treaty partners has contributed to the stability of multilateral APAs. For example:

• 2022 APMA Data: 20% of APAs were multilateral (unchanged from 2020).
• OECD Pillar One: Introduced Amount A (new nexus rules for digital companies), affecting transfer pricing models.

The stability of multilateral APAs reflects the IRS's commitment to resolving transfer pricing disputes through coordinated mechanisms, which provide greater certainty and reduce the risk of double taxation. The Competent Authority Office has prioritized multilateral negotiations to ensure consistency with foreign tax authorities and prevent conflicting interpretations of the arm's-length standard.

User Fee Filings Not Yet Accompanied by Complete Applications

As of December 31, 2025, APMA had received 31 user fee filings that were not yet accompanied by a substantially complete APA application. This figure indicates either:

• Strategic delay by taxpayers as they assess the IRS's operational constraints under LB&I, or
• Preliminary APA strategy development by taxpayers seeking to avoid double taxation in high-risk treaty partners.

For multinational taxpayers considering APA strategies in 2026 and beyond, these trends provide actionable insights for:

• Prioritizing bilateral APAs to avoid double taxation in treaty partner jurisdictions,
• Documenting critical assumptions and monitoring compliance to ensure APA validity, and
• Engaging with the APMA Program early to resolve transfer pricing disputes under § 482 and tax treaties.

Executed and Pending APAs in 2025: A Statistical Breakdown

The 2025 APMA Program report reveals a nuanced landscape of executed and pending Advance Pricing Agreements (APAs), reflecting both historical trends and emerging strategic priorities for multinational taxpayers. The data underscores the IRS's continued emphasis on bilateral APAs while highlighting shifts in renewal rates and geographic concentration of pending cases. For practitioners navigating transfer pricing disputes under § 482 and tax treaties, these statistics offer critical insights into APMA's operational priorities and the evolving risk calculus for taxpayers.

Total APAs Executed (1991–2025)

Since 1991, the IRS has executed 2,676 APAs, with 70.5% bilateral, 28.0% unilateral, and 1.5% multilateral. Bilateral APAs dominate due to their alignment with treaty partners and reduced double taxation risk.

APAs Executed in 2025: Volume and Trends

In 2025, the APMA Program executed 110 APAs (90 bilateral, 14 unilateral, 6 multilateral). Renewal rates declined to 50% (from 58% in 2024), reflecting increased scrutiny of critical assumptions and stricter compliance requirements. Service-based transactions rose, particularly in technology and financial services.

Pending APAs as of December 31, 2025

As of year-end 2025, the APMA Program had 622 pending APA requests (12% increase from 2024). Japan and India dominated the caseload (48% combined), reflecting ongoing negotiations on digital services taxes and Pillar Two compliance. Other key partners included Canada (11%), Germany (4%), Mexico (6%), and the UK (4%).

Renewals Executed and Pending in 2025

In 2025, the APMA Program executed 55 renewal APAs (39 bilateral, 13 unilateral, 3 multilateral). The pending renewal caseload stood at 310 requests, with 82.6% bilateral renewals (Japan and India dominated). Renewal rates declined to 50% (from 58% in 2024), driven by economic volatility, regulatory changes (e.g., Pillar Two), and increased IRS scrutiny.

Shifts in Renewal Percentages: Implications for Taxpayers

The decline in renewal rates from 58% in 2024 to 50% in 2025 is more than a statistical anomaly—it reflects a fundamental shift in the IRS's approach to APAs. Several implications arise from this trend:

1. Increased Compliance Burden: Taxpayers seeking to renew APAs must now demonstrate stronger compliance with critical assumptions and provide more granular documentation of their transfer pricing methodologies. The IRS's 2025 report emphasizes that renewal applications are subject to the same scrutiny as initial applications, with a particular focus on profit level indicators (PLIs) and comparability analyses.

2. Greater Emphasis on Bilateral APAs: The high proportion of bilateral renewals (82.6% of pending cases) suggests that the IRS is prioritizing treaty-based resolutions to avoid double taxation. Taxpayers with pending unilateral renewals may face longer processing times or additional compliance requirements, as the IRS pushes for bilateral resolutions.

3. Strategic Restructuring: The decline in renewal rates may prompt taxpayers to restructure their APAs rather than renew existing ones. This could involve adopting new transfer pricing methods, such as profit splits for intangible-driven transactions, or aligning with Pillar Two requirements to ensure global tax certainty.

4. Risk of APA Revocation: Taxpayers whose APAs are not renewed may face increased audit risk, particularly if their transfer pricing methodologies are not aligned with current IRS expectations. The IRS's 2025 report notes that APAs that are not renewed are more likely to be subject to audit, as the agency seeks to ensure that taxpayers are complying with the arm's-length standard.

For practitioners, these trends underscore the importance of early engagement with the APMA Program and proactive monitoring of critical assumptions. Taxpayers should also consider diversifying their APA strategies to include bilateral and multilateral agreements, which provide greater certainty and reduce the risk of double taxation.

Visualizing the Trends: Charts and Data Points

The 2025 APMA report includes several charts that illustrate the trends in executed and pending APAs. These visuals provide a clear and concise overview of the data, highlighting key shifts in the program's operations.

1. APAs Executed (2016–2025): The chart shows a steady increase in bilateral APAs over the past decade, with a notable decline in 2025. The decline in 2025 is attributed to the increased scrutiny of renewal applications and the impact of economic volatility on transfer pricing methodologies.

2. Bilateral APAs Executed by Country (2025): Japan and India dominate the caseload, accounting for 60% of all bilateral APAs executed in 2025. This reflects the growing economic ties between the U.S. and these jurisdictions, as well as the complexity of their transfer pricing regimes.

3. Pending Bilateral APAs by Country (2025): Japan and India again lead the pending caseload, with 48% of all pending bilateral APA requests involving these two countries. The chart highlights the IRS's focus on resolving disputes with these treaty partners, particularly in light of Pillar Two implementation and digital economy transactions.

4. Renewals Executed (2016–2025): The chart shows a decline in renewal rates from 58% in 2024 to 50% in 2025, reflecting the increased scrutiny of renewal applications and the impact of economic volatility on transfer pricing methodologies.

These charts provide a visual representation of the trends in the APMA Program, offering practitioners a quick and effective way to understand the program's operations and the IRS's priorities.

Conclusion: Actionable Insights for Taxpayers

The 2025 APMA report offers a comprehensive snapshot of the IRS's APA program, highlighting key trends in executed and pending agreements, renewal rates, and geographic concentrations. For multinational taxpayers, these insights provide actionable guidance for navigating the complex landscape of transfer pricing disputes:

1. Prioritize Bilateral APAs: Given the IRS's preference for treaty-based resolutions, taxpayers should prioritize bilateral APAs to avoid double taxation and ensure greater certainty in their transfer pricing methodologies.

2. Document Critical Assumptions: The decline in renewal rates underscores the need for rigorous documentation of critical assumptions in APAs. Taxpayers should monitor economic conditions and proactively engage with the APMA Program to ensure that their APAs remain valid.

3. Engage Early with APMA: The IRS's increased scrutiny of renewal applications and the high volume of pending cases with Japan and India suggest that early engagement with the APMA Program is critical. Taxpayers should file APA requests as soon as possible to avoid delays and ensure that their cases are resolved in a timely manner.

4. Align with Pillar Two Requirements: The implementation of Pillar Two and the OECD's 2022 Transfer Pricing Guidelines have introduced new compliance requirements. Taxpayers should align their APAs with these requirements to ensure global tax certainty and avoid audit risk.

5. Diversify APA Strategies: The decline in renewal rates and the increased scrutiny of existing APAs suggest that taxpayers should diversify their APA strategies to include bilateral and multilateral agreements, as well as new transfer pricing methodologies such as profit splits for intangible-driven transactions.

By leveraging these insights, multinational taxpayers can navigate the evolving landscape of transfer pricing disputes with greater confidence and certainty.

APA Revocations, Cancellations, and Withdrawals: 2025 Data

In 2025, there were zero revocations or cancellations (vs. 11 total from 1991–2025) and 10 withdrawals (vs. 265 from 2001–2024). The absence of revocations reflects the IRS's preference for negotiation over termination, while the decline in withdrawals signals more strategic APA applications. The IRS's flexibility in critical assumptions and preference for bilateral agreements contribute to this stability.

Industry Focus: APAs Executed in 2025 by Sector

The 2025 APMA report reveals a striking concentration of Advance Pricing Agreements (APAs) across specific sectors, with Wholesale/Retail Trade emerging as the dominant player at 29% of all executed agreements. This dominance reflects broader economic realities where global supply chain restructuring and post-pandemic consumer behavior shifts have intensified transfer pricing scrutiny. The data suggests that industries with complex intercompany transactions—particularly those involving physical goods movement and distribution networks—are prioritizing tax certainty through APAs at unprecedented rates.

The Wholesale/Retail Trade category itself warrants deeper examination, comprising 32 agreements that break down into Merchant Wholesalers, Durable Goods (14 agreements), Merchant Wholesalers, Nondurable Goods (6 agreements), General Merchandise Stores (5 agreements), and All Other Wholesalers (7 agreements). This distribution reveals that durable goods wholesalers—likely including automotive parts, industrial equipment, and technology components—are driving the sector's APA activity. The concentration in durable goods suggests these taxpayers face particularly complex transfer pricing challenges due to high-value, low-margin transactions and intricate supply chain structures that span multiple jurisdictions.

Services (28 agreements) and Manufacturing (22 agreements) follow closely behind, representing 25% and 20% of total APAs respectively. The Services sector's strong showing aligns with the broader trend of digital transformation across industries, where service-based multinational enterprises face transfer pricing challenges related to intellectual property licensing, shared service arrangements, and cross-border professional services. Manufacturing's significant presence reflects ongoing supply chain realignments post-COVID-19, where companies are restructuring operations to mitigate future disruptions while maintaining tax efficiency.

The Management sector (16 agreements, 15% of total) and Finance, Insurance and Real Estate (8 agreements, 8%) complete the top five sectors. The Management sector's participation likely stems from professional services firms with complex partnership structures and profit allocation mechanisms, while the financial services presence underscores the ongoing scrutiny of intercompany financing arrangements and guarantees in the wake of global tax reforms targeting base erosion.

This sectoral distribution carries important implications for tax practitioners. The dominance of Wholesale/Retail Trade and Manufacturing suggests that IRS scrutiny in these sectors will intensify, particularly regarding inventory valuation methods, cost-sharing arrangements, and supply chain restructuring impacts. The Services sector's strong showing indicates that digital economy taxpayers must prepare for more rigorous examination of their transfer pricing methodologies, particularly around intangible asset valuation and profit allocation in shared service centers.

The data also reveals a strategic shift among taxpayers toward industries where transfer pricing disputes have historically been most contentious. The high concentration in sectors with complex, multi-jurisdictional operations suggests that multinational enterprises are proactively seeking APA coverage to avoid the double taxation risks that have plagued these industries in previous audit cycles. This trend reflects the IRS's increasing emphasis on resolving transfer pricing disputes through bilateral mechanisms, as evidenced by the growing proportion of bilateral APAs in recent years.

For practitioners advising clients in these sectors, the 2025 data signals the need for enhanced documentation strategies that address the specific transfer pricing challenges inherent to each industry segment. Wholesale/retail taxpayers must particularly focus on developing robust comparability analyses for their distribution networks, while service sector clients should prepare for heightened scrutiny of their profit allocation methodologies in light of recent OECD guidance on digital transactions. The manufacturing sector's strong representation suggests that companies restructuring their global supply chains should consider APA coverage to provide certainty in an environment of rapidly changing economic conditions.

APA Relationships and Transactions: 2025 Shifts

In 2025, APA relationships showed parity: 45% involved U.S. parents and non-U.S. subsidiaries, 45% non-U.S. parents and U.S. subsidiaries, and 10% sister company relationships. Service-based transactions dominated, reflecting the IRS's focus on digital transactions and intangible-driven value creation. The IRS's scrutiny of functional and risk allocations (e.g., DEMPE framework) underscores the need for robust documentation of economic substance.

Transfer Pricing Methods and Comparability in 2025 APAs

In 2025, the IRS executed 100 APAs, with CPM/TNMM accounting for 86% of tangible/intangible property transactions and 83% of services transactions. The operating margin (OM) was the most common PLI (57% of cases), followed by the Berry Ratio and return on sales (20%). The IRS's reliance on CPM/TNMM reflects its flexibility for diverse business models but also exposes taxpayers to heightened scrutiny of comparability adjustments and critical assumptions.

Key trends include:

• 41% of tested parties were non-U.S. service providers, reflecting the IRS's focus on global value chains.
• Stricter standards for comparability adjustments (e.g., balance sheet, accounting practice adjustments).
• Interquartile ranges and targeted arm's length ranges as benchmarks, with adjustment mechanisms for results outside agreed ranges.
• Limited use of the Berry Ratio due to IRS skepticism in high-value intangible or complex supply chain cases.

The IRS's approach aligns with OECD guidelines on economic substance and value creation, particularly for intangible property and digital transactions.

The Context: Political, Industry, and Historical Factors

The dominance of CPM/TNMM in 2025 APAs is the result of a confluence of political, industry, and historical factors. Politically, the IRS's reliance on CPM/TNMM reflects its efforts to align U.S. transfer pricing enforcement with global standards, particularly those articulated in the OECD Transfer Pricing Guidelines and the BEPS Action Plan. The IRS's push for greater transparency and economic substance in transfer pricing methodologies is consistent with the Biden administration's broader agenda to combat profit shifting and ensure that MNEs pay their fair share of taxes. This political alignment has been reinforced by the Inflation Reduction Act of 2022, which allocated additional resources to the IRS for transfer pricing enforcement, including the hiring of economists and data analysts to scrutinize CPM/TNMM applications.

Industry trends have also played a significant role in the IRS's reliance on CPM/TNMM. The rise of digital economy and intangible-heavy industries has made traditional transaction-based methods like CUP and RPM less practical, as these methods often lack reliable comparables for transactions involving cloud computing, software licensing, or research and development (R&D) services. The IRS's use of CPM/TNMM in 2025 APAs reflects its recognition of the need for a more flexible framework that can accommodate the economic realities of these industries. This trend is consistent with the IRS's broader efforts to update its transfer pricing regulations to address the challenges posed by the digital economy, as evidenced by its 2023 proposed regulations on profit splits for digital transactions.

Historically, the IRS's reliance on CPM/TNMM can be traced back to the 1994 transfer pricing regulations, which introduced the method as a viable alternative to traditional transaction-based methods. The IRS's preference for CPM/TNMM has grown over time, particularly as the method's flexibility has made it an attractive option for taxpayers seeking to secure APAs. The 2025 data shows that the IRS's reliance on CPM/TNMM is not merely a matter of convenience but a reflection of its institutional capacity to administer the method effectively. The IRS's use of CPM/TNMM in 2025 APAs is supported by a robust infrastructure of databases, economic models, and comparability adjustments that enable the agency to evaluate the arm's length nature of intercompany transactions with greater precision.

The IRS's reliance on CPM/TNMM in 2025 APAs is also a response to the challenges posed by the post-pandemic global economy. The economic disruptions caused by the COVID-19 pandemic, geopolitical tensions, and supply chain bottlenecks have made it increasingly difficult for taxpayers to rely on traditional transaction-based methods that require stable market conditions and reliable comparables. The IRS's use of CPM/TNMM in 2025 APAs reflects its recognition of the need for a more flexible framework that can accommodate the economic volatility and uncertainty of the modern global economy. This trend is consistent with the IRS's broader efforts to provide taxpayers with greater certainty through APAs, even as the underlying economic conditions remain uncertain.

The IRS's reliance on CPM/TNMM in 2025 APAs is not without its critics. Some taxpayers and practitioners argue that the method's flexibility can lead to profit shifting if not properly constrained by robust comparability analyses and critical assumptions. The IRS has responded to these concerns by imposing stricter standards for the selection of tested parties, the use of PLIs, and the nature of adjustments made to comparables. For example, the 2025 data shows that the IRS is increasingly scrutinizing the use of the Berry Ratio as a PLI, particularly in cases involving high-value intangibles or complex supply chains. The IRS's skepticism of the Berry Ratio is reflected in its limited use in 2025 APAs, where it accounted for only a small fraction of the PLIs used in CPM/TNMM analyses.

The IRS's reliance on CPM/TNMM in 2025 APAs is also a reflection of the agency's broader efforts to align U.S. transfer pricing enforcement with global standards. The OECD Transfer Pricing Guidelines and the BEPS Action Plan have emphasized the need for transfer pricing methodologies that reflect economic substance and value creation, rather than legal form. The IRS's use of CPM/TNMM in 2025 APAs is consistent with these global trends, as the method provides a flexible framework for benchmarking profitability across different jurisdictions and business models. This alignment with global standards is particularly important in an era of increasing international cooperation on tax enforcement, as evidenced by the OECD's Pillar Two initiative on global minimum taxation.

The Implication: What Practitioners Need to Know

For tax practitioners, the IRS's reliance on CPM/TNMM in 2025 APAs presents both opportunities and challenges. On the one hand, the method's flexibility makes it an attractive option for securing APAs, particularly for transactions involving intangible property or complex supply chains. On the other hand, the IRS's heightened scrutiny of CPM/TNMM applications means that taxpayers must ensure that their transfer pricing methodologies are supported by robust economic evidence and that any adjustments are clearly documented and justified. Practitioners must therefore adopt a forward-looking perspective, anticipating that the IRS will continue to prioritize substance over form and economic