U.S. Government Continues to Increase Focus on Transfer Pricing with Increased Controversy Expected
July 7, 2009 by Charlie
Filed under FairTax News
www.wtexecutive.com
02 Jul 2009 10:20 PMExcerpt from Practical US/International Tax Strategies by Bob Ackerman, David J. Canale, Karen Kirwan, Carlos Mallo, Mike Patton, Leigh Anne Pasak and Peyton Robinson (Ernst & Young LLP)
Transfer pricing will undoubtedly become a more significant focus of attention for the Internal Revenue Service (IRS) in their examinations of multinational corporations (MNCs). In a statement regarding international tax reform on May 4, 2009, President Obama announced that the IRS will “hire nearly 800 more IRS agents” to increase international tax enforcement efforts.
Concurrent with his remarks, the White House issued a press release commenting on the President’s proposal, indicating that the budget would provide the IRS with funds “to hire new agents, economists, lawyers, and specialists, increasing the IRS’s ability to crack down on offshore tax avoidance, often done through transfer pricing and financial products.” Despite the Administration’s recent announcements reflecting greater scrutiny of international tax issues, nevertheless, there may still be a public perception that the President’s plan will not cover transfer pricing. On May 5, 2009, the New York Times published an article citing different sources indicating that transfer pricing was the “one tax loophole open” in the plan. This perception—wholly without merit—may incite Congress to demand that the Treasury Department and the IRS enforce compliance with transfer pricing even more aggressively.
As a result of an “accelerating globalization,” the IRS has been focusing on international tax compliance. The President’s budget proposal recognizes the existence of a perceived tax gap and aims to raise $210 billion over the next ten years from increased enforcement and tax reforms.
As part of this broader effort, the IRS is aggressively pursuing more transfer pricing examinations, with emphasis on the “transfer of intangibles, contract manufacturing, and global securities dealings” where tax officials perceive higher risks of taxpayers shifting income abroad. In line with this perception, a senior adviser to the IRS commissioner said: “Aggressive taxpayers also include those who game the transfer pricing rules proactively, such as by moving intangibles to low-tax jurisdictions.” A number of factors are expected to increase transfer pricing scrutiny in the years to come, including: more aggressive transfer pricing regulations, increased exchanges of information among tax authorities, boosts in the resources assigned to the IRS, increased information reporting requirements, and initiatives to enhance enforcement efforts.
