International Tax Issue: Transfer Pricing

Transfer pricing issues arise when a company sells or transfers goods, services, or intangibles to a related entity (usually a foreign entity). Section 482 of the Internal Revue Code give the IRS authority to adjust the income, deductions, credits, or allowances of commonly controlled taxpayers to prevent evasion of taxes or to “clearly reflect” their income. The IRS regulations under section 482 generally provide that prices charged by one affiliate to another, in an intercompany transaction involving the transfer of goods, services, or intangibles, should be consistent with prices that would have been charged if unrelated taxpayers had engaged in the same transaction under the same circumstances. If your business does business in foreign jurisdictions or utilizes a IC-DISC (Interest Charge Domestic International Sales Corporation), FSC (Foreign Sales Corporation) or a direct foreign subsidiary your business has transfer price issues. Currently the IRS has implemented the Advance Pricing Agreement (APA) Program. An APA is a binding contract between the IRS and a taxpayer by which the IRS agrees not to seek a transfer pricing adjustment under IRC § 482 for a covered transaction if the taxpayer files its tax return for a covered year consistent with the agreed transfer pricing method. Contact Paul for assistance and guidance in this complicated area of the law. Click here to contact Paul.

Comments are closed.