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Tag Archive for transfer pricing

Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 3 of Series): “TPEP Execution Phase”

Doug Schwerdt

In this third article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Execution Phase.

The Execution Phase immediately follows the opening conference and consists of continued risk assessment, fact finding, information gathering, and issue development. Stages of issue development include determining the facts, applying the law to those facts, and understanding the various tax implications of the issue. The issue team is advised to make every effort to resolve factual differences with the taxpayer.

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 2 of Series): “TPEP Planning Phase”

GUY SANSCHAGRIN

In this second article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Planning Phase.

The Planning Phase determines the scope and issues of the transfer pricing examination. The TPEP states, “Issues selected for examination should have the broadest impact on achieving compliance regardless of the size or type of entity.” Important steps in the Planning Phase are: 1) the Initial Transfer Pricing Risk Assessment, 2) issuance of the Initial Transfer Pricing Information Document Request (IDR), 3) IRS internal planning meetings, 4) development of the exam plan, timelines and milestones, and 5) the opening conference, which is the final step of the Planning Phase and marks the transition to the Execution Phase.

Evolving Guidance
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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 1 of Series)

Transfer Pricing Examination Process: Are You Prepared?

The IRS guidance, Transfer Pricing Examination Process, Publication 5300 (TPEP), released in June 2018, is more relevant now than ever before. There is a broad consensus among transfer pricing and international tax practitioners that tax authorities around the globe will step up transfer pricing audit activity within the next year as a means to recoup lost tax revenue resulting from the pandemic-induced recession. Fortunately, for US-based entities in multinational enterprise (MNE) groups, the IRS has in recent years issued taxpayer guidance on how to prepare for transfer pricing examinations. This series of blog articles is structured to help tax executives quickly get up to speed with the IRS’s guidance on transfer pricing examinations and its expectations on documentation.

In this first installment we introduce the TPEP. The next three installments of this series highlight and summarize the essential aspects of the three TPEP Phases: Planning, Execution, and Resolution. Subsequent installments examine how the TPEP diverges from the Transfer Pricing Audit Roadmap, its predecessor guidance, and provide TPEP insights in the form of useful takeaways. Saving the best for last, the concluding article of this series will focus on the IRS’s most recent transfer pricing guidance, FAQs re Transfer Pricing Documentation Best Practices.

TPEP Primer

IRS transfer pricing examinations can be unpleasant experiences for taxpayers. Chances are, an international business in the U.S. – whether it is headquartered in the U.S., or a subsidiary of a foreign parent – is going to have its transfer pricing examined by the IRS at some point. Transfer pricing has been cited by IRS officials for years as one of their most important enforcement priorities. But as a direct result of the OECD’s Base Erosion and Profit Shifting (BEPS)1 project, tax authorities around the world are actively engaged in the process of revising and tightening their expectations and requirements with respect to transfer pricing. The prospect of thorough and detailed examinations of taxpayers’ transfer pricing positions is growing every day.
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Tax Authorities Looking For Revenue: Now Is Not the Time To Ignore Transfer Pricing

Transfer Pricing Software

COVID-19 necessitates a reassessment of the existing transfer pricing paradigms of Multinational Enterprises (MNEs). Supply chain disruptions and changes in consumer demand resulting from the COVID-19 pandemic and global recession are impacting virtually all major industries. These disruptions erode profits and will require MNEs to adjust transfer pricing approaches. MNEs also face challenges such as government restrictions on travel and enabling personnel to work remotely.

Three points are well illustrated by Will James in the 16-Mar-2020 BKD, LLP Thoughtware® article Transfer Pricing in the Wake of COVID-19: 1) Transfer pricing audits are anticipated to increase for 2020 and future tax years for MNEs with adversely affected profitability; 2) MNEs need to start preparing for audits now by documenting the arm’s length nature of their transfer pricing arrangements and including evidence and analysis of extraordinary COVID-19 business disruptions that result in lower profitability or losses; 3) Documentation of lower profitability or losses that result from COVID-19 and the recession is particularly important for reduced-profit or loss-making MNE entities subject to profit-based methods guaranteeing minimum returns (e.g., Transactional Net Margin Method).

The following is a checklist to consider:
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Business Valuation, Growing Value And Liquidity Realization (Part XIX Of Book Series)

MICHAEL GILBURD

Transfer Pricing – the practice of charging prices for the supply of goods or services to a related entity (usually wholly owned) in such a way as to repatriate profits or affect tax or duty bills in your favor.

Generally, international transfer pricing and tax planning experience has been obtained from working for major financial institutions while assigned to large multinational corporations.

You can rely on a credible transfer pricing study for the following:

• The U.S. transfer pricing regulations, under IRS §482 of the Internal Revenue Code, require that inter-company transactions be priced under the same terms that would have existed had the transactions taken place between unrelated entities. Similar regulations now exist in virtually every developed nation around the world.

• Any business entity operating in more than one country likely has inter-company transactions involving the exchange of tangible property, intangible property or services.

The Importance of Transfer Pricing
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What We Are Doing to Help Corporate Tax Executives Handle Transfer Pricing Remotely

GUY SANSCHAGRIN on Transfer Pricing

It goes without saying that the COVID-19 pandemic is the major concern of nearly all multinational enterprises (MNEs) at the moment. Radical containment measures continue to be put in place by governments around the world in efforts to slow the spread of the virus. Many of these measures center on the concept of ‘social distancing’ and have included closing businesses and organizations, cancelling events, prohibiting international and domestic travel, and quarantining cities and even regions. COVID-19 containment measures have disrupted business as usual, from manufacturing plant shutdowns to creating information inefficiencies and collaboration challenges at MNE headquarters and across global entities. These business disruptions create challenges for effectively managing transfer pricing information and workflows.

Companies are instructing whole departments to work from home, and the traditional workplace is increasingly reserved for jobs that cannot be performed remotely. This presents challenges for MNEs, especially at the headquarters level, such as keeping information and workflows organized, and maintaining effective communication and collaboration between stakeholders and ‘gatekeepers’ in different departments of global entities.
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U.S. Concerns About OECD/G20 IF-BEPS Sparks Controversy – Mark Zuckerberg(Facebook) Sides With OECD On IF-BEPS

Gary Heald Jr on OECD - BEPS

Today, Facebook announced that they support global tax reform, even if it means they have to pay more tax and pay it in different places under a new framework.

As discussed previously, the OECD/G20 has been working toward a resolution with regard to the extreme abuses in international tax (transfer pricing) base erosion and profit shifting. Until about December 3rd, 2019, the U.S. all but led the way in the discussions. Amid international tensions with tariffs as well as the potential for damage to American MNE’s to whom the new rules would apply, the U.S. floated the idea of adding a “Safe Harbor” provision to the rules, allowing the U.S. to opt-out of some or even all of the agreement. A Safe Harbor is where a boat goes to get out of the storm — it essentially allows it to opt out, when waters get too rough. The Safe Harbor would allow Facebook the ability to avoid more tax, so why would they support the OECD/G20 IF-BEPS and not the US Treasury on the safe harbor proposal?

On one hand, the Safe Harbor provision is problematic because as it stands the OECD/G20 have constructed the system in such a way as to require the entire multilateral agreement to be adopted and executed by each member state in order for the full system to work. If one state does not adopt the rules, then that state has the potential to become the tax haven to which MNE’s flee to avoid tax. The fact that Facebook is already in the United States reveals that even amid discussions for including the Safe Harbor protection, a new generation of American MNE is emerging which is more globally conscious and believes in a more fair system of taxation. Put differently, Zuckerburg could say nothing, lobby the U.S. to stay out of the agreement and reap the benefits that would come with the U.S. maintaining a position as a tax haven for digitalized MNE’s.
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Netherlands: Dutch Tax Authorities And Dutch Tax Rulings

Jimmy Cox - Dutch Tax Rulings

In the Netherlands it is possible to discuss your specific tax position with the Dutch tax authorities and mutually agree on the tax consequences thereof. The Dutch tax authorities and the taxpayer are bound by the agreement they make. The agreement has to be regarding the interpretation and qualification of facts. The ruling has to be in conformity with the Dutch tax legislation. In other words the agreement cannot be in conflict with the Dutch tax legislation (contra legem). In August 2004, the Dutch ruling policy was formalized in an advance tax ruling (ATR) policy and an advance pricing agreement (APA) policy.

Dutch advance pricing agreement (APA)

An APA covers the agreement on an at arms’ length remuneration or on the transfer pricing methodology. The basis for an APA is a transfer pricing study. The Dutch tax authorities and the tax payer agree that the outcome of the transfer-pricing study would form the basis for the determination of the income for Dutch corporate income tax purposes.

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Transfer Pricing And BEPS – Important Announcement From President Of The Council Of The European Union

The Council Of The European Union came to a political agreement to the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. All delegations in the Commission “agree on the principle that disclosure of potentially aggressive tax planning arrangements of a cross-border dimension can contribute effectively to an environment of fair taxation in the internal market and that tax authorities share the disclosed information with their peers in other Member States.”

“The Commission presented the legislative proposal with the main purpose of this initiative is to strengthen tax transparency and fight against aggressive tax planning by including into the existing Council Directive on administrative cooperation in the field of taxation (DAC) new provisions, which would require Member States to:

– lay down rules for mandatory disclosure to national competent authorities of potentially aggressive tax planning schemes with a cross-border element (“arrangements”) by the “intermediaries”    (e. g. tax advisers or other actors that are usually involved in designing, marketing, organizing or managing the implementation of such “arrangements”); and ensure that national tax authorities automatically exchange this information with the tax authorities of other Member States by using the mechanism provided for in DAC.

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Senior Tax Manager/Transfer Pricing And International (New Jersey)

Senior Tax Manager- Transfer Pricing New Jersey

Responsibilities involve a wide range of international tax matters including transfer pricing, international aspects of consolidated income tax provision, and international elements of US tax compliance. Coordinate with international finance organization regarding international audits, income tax and transaction tax compliance.  Role is responsible for providing technical tax leadership, with an emphasis on transfer pricing and international tax. Position is responsible for transfer pricing and international tax matters for the Americas consolidated group including preparation and/or review of international portions of the consolidated tax provision, preparation and/or review of international reporting requirements for the US consolidated return. Read more

US Tax Reform As A Chess Puzzle

Co-Authors: John S. MacArthur and Dale A. Spiegel, Jr.

As with global tax strategists, chess players routinely practice against hypothetical opponents to prepare themselves for real contests. Now is the time for the tax community (“taxpayers” below) to similarly prepare for US tax reform (“USTR”).

Taxpayers (White) must act now not knowing what taxing authorities (Black) will do next. Some rules (e.g. BEPS (the OECD Base Erosion and Profit Shifting counter-measures)) are known. Some Black moves (e.g. BEPS implementation) may be anticipated with some reliability. Other potential Black gambits (e.g. the course of US tax reform) are more speculative as of this writing. Chess puzzles often allow White to make a “forcing move” that compels Black’s doom, or perhaps at least allow White to protect itself from defeat by finding a stalemate. Taxpayers moving today do not have that option – all they can do is position themselves as far as possible to achieve favorable outcomes under the most likely variety of taxing authority moves.

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An Interview With A Tax Luminary – Eric Ryan

This is part of the series of interviews I am conducting of highly respected tax experts and luminaries in Silicon Valley. Many of them will be speaking at the 2017 TEI – High Tech Tax Institute Conference in November. Eric Ryan is one such Silicon Valley tax luminary who was also responsible for receiving the world’s first Bilateral Advanced Pricing Agreement (U.S. – Australia). I know of Eric Ryan’s professional accomplishments since Apple Computer retained me to find him many years ago. Eric Ryan was formerly the Head of Tax at Apple Computer, a National Tax Partner/Transfer Pricing with PWC and is an international Tax Lawyer with DLA Piper, Palo Alto, CA. He understands the world of tax from all perspectives.

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