US Taxpayers Need to Be Ready with Their Transfer Pricing Documentation

Since the summer of 2023, the IRS has been significantly expanding its transfer pricing enforcement through increased staff and data analytics. U.S. taxpayers should thoughtfully evaluate potential weaknesses in their positions and consider how they can bolster transfer pricing documentation and background support.

The IRS has begun taking a more detailed approach to assessing the completeness of documentation and assessment of potential penalties. Often, these penalties can be significant to a taxpayer’s business and are costly and time-consuming to appeal. Companies that made substantial adjustments to their transfer pricing comparable company sets or haven’t prepared complete transfer pricing documentation in the past should review their documentation and approach to consider if additional pricing support is needed.

Recent court decisions and ongoing litigation serve as reminders that companies should not rely on prior settlements, expired IRS agreements, or audit history to protect against future adjustments. We have also noticed expanded and aggressive taxing authorities outside the United States regarding transfer pricing issues. Depending on the company and its risk profile, an Advance Pricing Agreement (APA) could be considered, especially if the intercompany transaction is high risk or if the transaction volume is significant.

The OECD’s International Compliance Assurance Program (ICAP) may be another avenue for companies to engage with tax authorities to obtain assurance about their transfer prices and practically reduce audit risks. The ICAP program, which is relatively new, enables a company to potentially obtain assurance across multiple jurisdictions that its transfer prices are “low risk.”

If you determine gaps in current transfer pricing documentation for your clients, please contact McGuire Sponsel’s Global Business Services team to discuss potential next steps.