How does a U.S. MNE apply for ICAP

A U.S. multinational enterprise (MNE) applies for the International Compliance Assurance Program (ICAP) by submitting a "selection documentation package" to the IRS by one of the periodic application deadlines published on the OECD website. The selection documentation package is designed to enable tax administrations to determine the suitability of the MNE group for ICAP, which tax administrations will participate in the risk assessment, and the scope of the transactions to be reviewed.

Here are the steps involved in the application process:

1. Initial Consultation: It is recommended that the U.S. MNE contacts the IRS at lbi.icap@irs.gov for an initial consultation before submitting the application materials. This consultation provides an opportunity to discuss the ICAP process with IRS personnel and address administrative items, including the specific manner in which the selection documentation package must be filed.
2. Preparation of Selection Documentation Package: The selection documentation package must include:
   • An MNE group information form.
   • A covered transaction overview.
   • The MNE group’s most recent Country-by-Country (CbC) report and master file.
   • A summary of the MNE group’s current global group structure.
   • A list of all unilateral, bilateral, and multilateral Advance Pricing Agreements (APAs) in place or in process, and other tax rulings relevant to the proposed covered transactions.
3. Submission of Selection Documentation Package: The MNE group submits the selection documentation package to the lead tax administration (typically the tax administration in the jurisdiction of the ultimate parent entity) by one of the periodic application deadlines published on the OECD website.
4. Evaluation of Suitability: The IRS evaluates the MNE group’s suitability for ICAP based on factors such as the scope, materiality, and complexity of the MNE group’s covered transactions, the MNE group’s history of transparent and cooperative engagement with the IRS, and the anticipated availability of IRS resources necessary to perform the risk assessment.
5. Coordination with Other Tax Administrations: The IRS coordinates with other tax administrations to determine their willingness to participate in the ICAP risk assessment and the scope of the risk assessment. This may involve multilateral meetings and discussions on the MNE group’s compliance history, transfer pricing, permanent establishment risks, and other relevant tax compliance risks.
6. Confirmation and Memorandum of Understanding (MOU): If the IRS and other tax administrations agree to participate, the MNE group must enter into an ICAP Memorandum of Understanding (MOU) with the IRS before proceeding to the risk assessment stage. The MOU describes the ICAP program, its limitations, information sharing, and potential outcomes of the risk assessment process.
7. Notification to LB&I Examination Personnel: The MNE coordinator provides written notification of the U.S. MNE group’s ICAP participation to relevant LB&I examination personnel within seven days of the MNE group’s confirmation that it will proceed to the risk assessment stage.

By following these steps, a U.S. MNE can apply for participation in the ICAP program, which aims to provide cooperative risk assessment and assurance on the level of tax compliance risk associated with certain cross-border transactions.

Sources:
IRM Part 4. Examining Process. Chapter 60. International Procedures. Section 11. International Compliance Assurance Program