Companies Face More Pressure to Get Transfer Pricing Right

The IRS’ growing focus on litigating transfer pricing disputes is increasing the pressure that multinational corporations are facing to accurately price their products traded between related legal entities. Millions of dollars in audits and legal fees may await companies who fail to take precautions, Law360 reported.

Fenwick’s tax partner Larissa Neumann spoke with the publication about the current legal environment and high profile cases.

"The IRS has been aggressively pursuing transfer pricing cases, especially cost-sharing buy-in payments," Neumann told Law360. "The IRS has always had the power to designate a case for litigation, but in the past has rarely done so."

Neumann also commented on the Organisation for Economic Co-operation and Development’s recommendations for combating base erosion and profit-shifting (BEPS) which have some differences from the U.S. guidelines.

While internationally the IRS upholds the arm’s length standard in BEPS, Neumann told Law360 that in the U.S. they have taken steps against this standard in some disputes.

The IRS has seen recent losses including against Altera when a U.S. Tax Court found that a 2003 IRS regulation “defied reasonable decision-making and failed the arm's-length standard of ensuring that transactions between related entities developing intangible property are comparable to what unrelated entities might negotiate,” Law360 reported.

The IRS has appealed this decision and a victory for the IRS “could undermine the U.S.’ efforts to preserve the arm’s-length standard in BEPS,” Neumann said.

The full article is available through the Law360 website​ (subscription required).