International Compliance Assurance Programme (ICAP) - A Possible Alternative to APA

For those pressed for time, here is a quick summary: This article aims to spark thought among multinational enterprises (MNEs) considering bilateral or multilateral Advance Pricing Arrangements (APAs). It suggests exploring the International Compliance Assurance Programme (ICAP) as an alternative. ICAP can be more cost-effective, involve shorter timelines, and impose less administrative burden. While ICAP offers comfort from tax authorities regarding specific transactions, it does not constitute a binding agreement. However, this comfort is often sufficient for low-risk transactions, as ICAP can cover up to four years. It primarily addresses transfer pricing and permanent establishment issues. ICAP is unsuitable for complex transactions, ongoing audits, APAs, or mutual agreement procedures (MAPs). Additionally, companies undergoing restructuring should avoid ICAP, as critical assumptions are essential for its success.

Read on for further insights into this evolving initiative.

Background

Introduced in 2018, ICAP addresses the complexities of international tax systems that often create uncertainties for MNEs. As businesses engage in cross-border activities, conflicts over tax rights allocation and double taxation risks increase. ICAP provides a platform for cooperation between tax authorities and businesses to address issues like transfer pricing, permanent establishments, and tax treaty interpretations proactively. Hence, ICAP seeks to enhance trust between tax authorities and taxpayers and reduce the likelihood of contentious tax disputes.

Under ICAP, MNEs can receive assurance that participating tax authorities do not plan to dedicate resources to further review of certain covered risks. A covered tax administration may provide comfort on a covered risk, from its own perspective, even in cases where the other side of the covered risk is in a non-participating jurisdiction. This approach is broader in scope than many APAs and MAP cases. Additionally, ICAP reduces documentation burdens, allowing MNEs to submit a single package for use by all covered tax administrations, unlike domestic programs requiring jurisdiction-specific documentation.

This article will not delve deep into the details of ICAP process since a MNE group would most likely to engage a tax professional to navigate and negotiate with the tax authorities, rather this article will touch base on the highlights, benefits and shortcomings of the programme.

Key Features of ICAP

1. Voluntary Participation
   MNEs voluntarily opt into ICAP, submitting documentation on operations, pricing policies, and intercompany transactions to relevant tax authorities.
2. Cooperative Risk Assessment
   Tax authorities collaboratively review the MNE’s tax positions to identify and resolve potential risks without initiating individual audits. This approach not only reduces the chances of disputes but also enhances the predictability of tax outcomes.
3. Mutual Agreement Procedure
   ICAP facilitates dispute resolution through MAP. By identifying and resolving tax uncertainties in advance, ICAP can reduce the use of MAP in cases where conflicts might otherwise arise.
4. Single Point of Contact
   ICAP assigns a single tax authority contact, streamlining communication and coordination, thus simplifying communication and coordination between the MNE and various tax authorities, improving the overall efficiency of the tax compliance process.
5. Confidentiality
   Sensitive business information shared during ICAP is handled with strict confidentiality and used solely to resolve tax risks. This ensures that MNEs can participate without fear of undue exposure or misuse of proprietary data.
   

• Selection Stage
  Tax administrations determine their participation based on a high-level review of the MNE’s transactions (selection documentation package). MNEs must submit a Country-by-Country report, master file, and tax control framework details. A minimum of three tax administrations is typically required to proceed. Main documentation package to be provided at the start of the risk assessment stage. Based on the revised timeline issued in December 2024 FAQ¹, this stage takes 8 –12 weeks, offering a structured yet flexible entry point for MNEs seeking clarity and alignment.
• Risk Assessment and Issue Resolution
  Tax authorities collaboratively assess risks, discusses on findings, to gain comfort that the covered risks pose a low risk, or else determines that such a finding is not possible. Low-risk transactions are identified, if covered transactions cannot be concluded as low-risk, some resolutions are offered such as any tax adjustments etc., thereby allowing a solution within the ICAP framework. Other unresolved risks may lead to domestic routes or APAs. This stage takes around 30 – 45 weeks (extendable).
• Outcomes
  Completion and outcome letters summarize risk assessments. These provide assurance for low-risk transactions, while unresolved risks may require further action. The letters offer a clear framework for understanding tax obligations and risks, empowering MNEs to navigate compliance with confidence. This stage might take 6 – 8 weeks.

1. Certainty
   MNEs gain clarity on tax positions, reducing audit risks and enabling informed decision-making. This foresight is invaluable in an era where tax environments are increasingly scrutinized.
2. Enhanced Cooperation
   ICAP encourages greater cooperation between tax authorities in different jurisdictions. By working together, tax authorities can avoid duplicative audits and address potential issues before they escalate, leading to a more efficient global tax system.
3. Reduced Disputes
   Proactive issue resolution lowers litigation risks and administrative costs. By addressing potential concerns upfront, ICAP helps MNEs avoid lengthy and costly disputes.
4. Compliance and Transparency
   ICAP builds trust through transparency and fosters voluntary compliance. This dynamic not only benefits tax authorities but also bolsters the reputational integrity of participating MNEs.
5. Global Alignment
   Supporting the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, ICAP aligns with international efforts to address tax avoidance. This alignment ensures that MNEs can operate within a globally recognized framework, reducing the risk of non-compliance.

Challenges and Limitations

Despite its advantages, ICAP is not without challenges. One of the main concerns is that the programme's effectiveness depends on the willingness of tax authorities to cooperate and the alignment of tax rules across different jurisdictions. As tax laws can vary significantly from one country to another, inconsistencies in the way tax authorities approach compliance may create barriers to the programme’s widespread adoption.

Moreover, the voluntary nature of ICAP means that not all MNEs may choose to participate. Smaller businesses or those with less complex international operations may find the process cumbersome or unnecessary, which could limit the programme’s reach and effectiveness.

It may not be suitable for transactions which are inherently complex and are perceived riskier. Skepticism might prevail, which can be addressed by proactive communication by respective tax authorities.

Statistics

According to statistics² released by OECD on 29 January 2024 (no planned annual updates as of January 2025); 40% of MNE groups, all the main covered risk areas were considered low-risk by all tax administrations that included them in the scope of the risk assessment. In total, 80% of MNE groups received either only low-risk outcomes in all of the main covered risk areas or a mix of low-risk and not low-risk outcomes in just one or two of these risk areas. The average time to reach an outcome as per revised FAQ¹ is 44 - 65 weeks (compared to APA which takes more than 36 months³ ~ 145 weeks).

To date, ICAP has focused on five core areas of international tax risk, though not all of these areas are covered in each risk assessment. The chart below illustrates the percentage of ICAP risk assessments that covered each of these five core risk areas.