THE TAX MAN COMETH – IRS EXPANSION OF SECTION 482 TRANSFER PRICING ENFORCEMENT TO MIDDLE-MARKET COMPANIES
In the past, transfer pricing cases have typically been large transactions involving large corporations – often the sales of goods and services between US companies and their foreign affiliates. But the landscape of transfer pricing cases is changing. The globalisation of the world economies has substantially increased the number and size of the companies engaged in cross-border transactions, making transfer pricing much more relevant to all corporations and their professionals.
In the past couple of years, the IRS has been shifting more resources to training specialised transfer pricing examiners and teaching examiners to recognise controlled transactions that may present a transfer pricing issue. The Large Business & International (LB&I) division of the IRS has established a team of transfer pricing specialists, who released a Transfer Pricing Audit Roadmap in 2014 that was designed to provide examiners with audit techniques to assist with transfer pricing examinations.
With the increased scrutiny by the IRS, now is the time for all corporations that engage in transactions with foreign controlled entities to make sure they have a transfer pricing policy and supporting documentation in place to ensure that the transfer prices are set at arm’s length.
What is transfer pricing?
Transfer pricing refers generally to the setting of prices for property and services sold between controlled entities, such as a parent corporation selling goods to a subsidiary. Where those corporations are in different tax rate jurisdictions, the IRS wants to ensure that the income associated with such transactions reflects the economic reality of the transaction.
Jan-Mar 2016 issue
Hochman, Salkin, Rettig, Toscher & Perez, P.C.