Treaties and the mutual agreement procedure
Income tax treaties between countries, including the treaty between the United States and Korea, allocate taxing rights and set rules for residents of each country. Claiming a treaty benefit usually requires showing that you qualify as a resident and, often, meeting anti-abuse conditions, and the paperwork for withholding purposes is easy to get wrong. When both countries tax the same income, many treaties allow a taxpayer to ask the two governments to resolve the double taxation through a mutual agreement procedure. In the United States, that process is handled by a dedicated IRS office. It moves slowly, and timing rules in both countries can affect whether relief is available.
Advance pricing agreements
An advance pricing agreement is an arrangement with the IRS, and often with a foreign tax authority, that sets in advance how prices between related companies will be determined for future years. It is used most often by groups with significant intercompany sales, services, or licensing. A bilateral agreement, negotiated with both countries, gives more certainty than a unilateral one, but takes longer. The process involves a detailed application, user fees, and ongoing annual reporting. Groups that are already in an audit over transfer pricing sometimes use the process to cover future and earlier years together.
Settlements with the IRS
Domestically, people also use the phrase for a closing agreement, a binding settlement of a tax matter with the IRS, or for an installment agreement to pay a debt over time. These are very different documents with different consequences, and reading the actual paper is essential. In a first meeting we identify which kind of agreement is involved or needed, review the intercompany contracts and transfer pricing documentation for cross-border matters, and coordinate with advisors in the other country where that helps.
