Have We Met Before? Transfer Pricing Issues between Domestic Entities and Their Foreign Affiliates

According to recent  U.S. Census Bureau statistics released by the U.S. Department of Commerce, 41.6% of total U.S. imports and exports were between related parties in 2022. Each of these transactions involve some transfer pricing (TP) analysis. With intercompany services, loans, and intangibles payments also adding to this analysis, it’s important for practitioners to be alert to the TP rules and their developments. Our transfer pricing resource kit can be a help in learning the tax rules on what’s reasonable in transfer pricing.

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Related Content

• Transfer Pricing Tax Fundamentals
  Reference the TP rules to determine how related parties should price their transactions in determining how profits are distributed within a business' worldwide structure or organization. The TP rules ensure that the intercompany pricing between a domestic company and its foreign entities exists at an arm's-length price that would be charged in a similar transaction with an unrelated third party. I.R.C. § 482 gives the Secretary of the Treasury authority to make allocations necessary to "prevent evasion of taxes or clearly to reflect the income of . . . organizations, trades or businesses." Be ready!
• Affirmative Transfer Pricing Adjustments
  See how, generally, the TP rules can only be used by the Secretary of the Treasury, but explore the circumstances where the taxpayer can invoke I.R.C. § 482. A taxpayer can use I.R.C. § 482 affirmatively in certain circumstances involving an original timely-filed tax return (including extensions), an amended return, or a setoff adjustment.

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.    

•  Tax Key Legal Developments Tracker (Federal)—keep up to date with key legal developments!
  • Business Entities. The Treasury Department and IRS announce that they intend to issue proposed regulations addressing (1) the capitalization and amortization of specified research or experimental (SRE) expenditures under I.R.C. § 174, as amended by the Tax Cuts and Jobs Act, (2) the treatment of SRE expenditures under I.R.C. § 460, and (3) the application of I.R.C. § 482to cost sharing arrangements involving SRE expenditures. Notice 2023-63.
  • Practice, Procedure and Controversy. IRS announces sweeping effort to restore fairness to the tax system with Inflation Reduction Act funding. New compliance efforts are focused on increasing scrutiny on high-income, partnerships, corporations, and promoters that abuse tax rules. IR-2023-166 (Sept. 8, 2023).
  • Practice, Procedure, and Controversy. IRS describes the rules it applies in determining the Federal income tax consequences of refunds of state or local taxes and certain other payments made by state or local governments to individuals, providing examples that illustrate application of these rules. Notice 2023-56.

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