Financier Worldwide Annual Review: Transfer Pricing 2022 – United States
Excerpt taken from the report.
Q. What do you consider to be the most significant transfer pricing changes or developments to have taken place in your country of focus over the past 12 months or so?
Armitage: The most significant development may be the 2021/22 priority guidance plan with new transfer pricing projects released by the Internal Revenue Service (IRS) and the Treasury. Although transfer pricing regulatory projects have become a recurring part of the IRS’s annual priority guidance plans, the latest plan refers to a series of new projects that suggest that more far-reaching changes could be coming. Like the new US foreign tax credit regulations, we expect that new transfer pricing rules will be aimed at challenging any digital service tax legislation and influencing the Organization for Economic Co-operation and Development’s (OECD’s) Pillar One efforts. These potential changes, like the changes to the foreign tax credit (FTC) regulations, will probably be utilized by the US in its ongoing negotiation with OECD countries regarding the
Q. In your opinion, do companies pay enough attention to the challenges and complexities of maintaining compliant transfer pricing policies?
Armitage: Most of our transfer pricing work relates either to advance pricing agreements (APAs) or to mutual agreement procedures and, by definition, companies involved are paying attention to challenges presented by transfer pricing requirements. Companies that have been audited in the past or that do not have good documentation in place can be subject to audit in multiple jurisdictions and should consider APAs as a way to address future exposure. APAs are a good tool to head off or address such audits in a comprehensive, forward-looking way. APAs may also be helpful to addressing requirements under the new US FTC regulations, which require taxpayers to exhaust administrative review procedures with local tax administrative authorities before claiming a credit for foreign taxes.
Q. To what extent have the tax authorities in your country of focus placed greater importance on the issue of transfer pricing in recent years, and increased their monitoring and enforcement activities?
Armitage: The IRS has been extremely active in transfer pricing enforcement for many years. There are numerous large cases currently in court, including Coca-Cola, 3M, Microsoft, Thomson Reuters and many others. The IRS undoubtedly has been emboldened by its significant trial court win in Coca-Cola. The court sustained transfer pricing adjustments of some $7bn over three years. We see no reason for the efforts and attention to transfer pricing to ebb.