Law360 Quotes Peter Barnes on Adjusting Comparables

Law360 Tax Authority

When unexpected circumstances cause losses for one member of a multinational group, the company should explain those circumstances rather than manipulating the set of comparables it uses as a benchmark for transfer pricing, the IRS said in guidance released Tuesday.

. . .

The issue of unexpected results is important, agreed Peter Barnes, Of Counsel with Caplin & Drysdale and a tax professor at the Duke University School of Law. But he didn’t think the example was limited to the novel coronavirus crisis, or even written with the pandemic in mind.

“There are many times when a business builds a strong and appropriate transfer pricing program, but then unexpected events arise,” Barnes told Law360. “Oil prices rise or fall dramatically; there is a fire in a warehouse; the CEO embezzles funds; a strong competitor enters the market.”

In each of these cases, he said, the actual business results will differ from what was expected when the transfer pricing program was developed. The IRS is right in advising taxpayers to confront those facts directly rather than trying “to manipulate comparables and create the illusion that nothing is amiss,” Barnes said.

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