Section 482

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When planets collide

Last week, the US Treasury released long-awaited proposed regulations on the corporate alternative minimum tax or “CAMT.” In a press release, Treasury estimated “that around 100 of the largest and most profitable companies will pay the CAMT annually.” According to Janet Yellen, the new rules will help combat “egregious U.S. corporate tax avoidance” that has led, in her view, to artificially low tax liabilities. Transfer pricing practitioners take note: one tool that Treasury plans to use in this effort to combat “abuse” is Section 482.Continue Reading When Worlds Collide: Transfer Pricing and the CAMT

Businessman propose to sign paper, give silver pen to make deal on document

Multinational groups constantly evolve, grow, and consolidate, and operational facts and circumstances always change. Say a growing company decides to expand internationally. It may choose to incorporate new foreign subsidiaries that will operate a manufacturing facility in one country and a limited-risk distributor in another.

The tax department will probably pay a lot of attention to the proper transfer pricing for transactions between these related parties of the growing multinational group. When it does so, it should ensure that the intercompany transactions, including the arm’s-length pricing, are memorialized in written intercompany agreements. We’ll address the most common questions you might have about these agreements.Continue Reading How Intercompany Agreements Can Mitigate Transfer Pricing Risk

On March 22, 2024 the IRS’s Advance Pricing Mutual Agreement Program (“APMA” or the “Program”) released Announcement 2024-16 which provides their annual Advance Pricing Agreement (“APA”) report (the “Report”), and the statistics show a record-breaking result for 2023 – 156 APAs resolved.  APMA resolves actual and potential transfer pricing disputes and other competent authority matters through United States’ bilateral income tax conventions.  This Report focuses on APAs (a solution to prevent future transfer pricing disputes) during calendar year 2023 and provides statistical information about the APA applications received and resolved, including countries involved, types of transactions, and transfer pricing methods.  Key takeaways and our observations are noted here.Continue Reading APA Statutory Report Reveals Successful 2023 for APMA

On February 19, 2024, the OECD Inclusive Framework on BEPS published its long-awaited final report on Pillar One – Amount B.[i]  The report details guidance on the “simplified and streamlined approach” (formerly known as Amount B) for applying the arm’s length principle to certain “baseline marketing and distribution activities.”  While offering some potential benefits in terms of reducing the need for comparables analyses and avoiding some disputes about comparables selection and adjustments, it is nevertheless narrow in scope, complex in application, and will likely give rise to inconsistencies in implementation throughout the world and more controversy. Continue Reading Amount B: Some Benefits, More Burdens

The IRS has made it clear once again that transfer pricing remains a key focus in its ongoing enforcement efforts.[1]  And with significant additional resources to do so over the next decade, the IRS is likely to focus some of these resources on taxpayers who have not undergone a transfer pricing audit in recent years or, perhaps, ever.  For example, while the IRS is onboarding the many new transfer pricing experts it hired in 2023, it has sent compliance alerts to certain U.S. subsidiaries of foreign corporations that distribute goods in the U.S. where the IRS thinks that these subsidiaries are not paying their fair share of tax on the profit they earn on their U.S. activity.[2] Taxpayers would be wise to take this time to prepare for an audit by reviewing their material intercompany transactions and undertaking a transfer pricing risk assessment.Continue Reading Transfer Pricing Audits: What Taxpayers Can Do to Prepare

“Implicit support” comes charging out of the gates as an early candidate for Word or Phrase of the Year for 2024. 

Before year’s end, the IRS Office of Chief Counsel dropped a new generic legal advice memorandum (“GLAM”), AM 2023-008, titled “Effect of Group Membership on Financial Transactions under Section 482 and Treas. Reg. § 1.482-2(a).” The GLAM visits some familiar territory, including the “realistic alternatives” principle, this time in the intracompany lending context.  Continue Reading Happy New Year.  Here’s a GLAM on Implicit Support.

In a recent case, Villa-Arce v. Commissioner,[1] a whistleblower sent information to the IRS that he believed showed that the company was using improper transfer pricing practices and taking unjustified deductions. The IRS opened an examination that resulted in other adjustments, but none based on the information from the whistleblower. For that key reason, the D.C. Circuit affirmed the Tax Court decision that the whistleblower was not entitled to an award for the collection of proceeds from the unrelated adjustments. Yet while the whistleblower walked away empty-handed, the case illustrates a unique type of transfer pricing and audit risk that comes from whistleblowers that companies should recognize. And given the indefinite nature of transfer pricing and the potential amount of dollars at stake, we will likely see more whistleblower actions involving transfer pricing.Continue Reading Blowing the Whistle on Transfer Pricing

Mayer Brown announced today that Sonal Majmudar, former international tax counsel with the Internal Revenue Service (IRS), joined its Tax practice as a partner. Sonal will be resident in the firm’s Washington DC office. Her arrival bolsters Mayer Brown’s market-leading, global tax offerings, particularly with regard to transfer pricing controversies and high-stakes international disputes.

On April 25, 2023, the IRS’s Advance Pricing and Mutual Agreement (“APMA”) Program issued new interim guidance for its review of taxpayer Advance Pricing Agreement (“APA”) requests. Notably, the guidance introduces an “optional pre-submission review” for taxpayers that wish to submit a prefiling memorandum before submitting a formal APA request. Based on the pre-submission review, APMA will give a preliminary opinion whether it believes that an APA is well-suited to achieve tax certainty for the proposed covered transactions. The new interim guidance also instructs APMA personnel on how to review formal taxpayer APA requests for acceptance to the program, or whether to suggest an “alternative workstream” such as the International Compliance Assurance Program (“ICAP”)[1] or a joint audit. Continue Reading APMA’s New Interim APA Guidance

DCF - Discounted Cash Flow.

In November, the IRS Office of Chief Counsel issued a generic legal advice memorandum (“GLAM”) AM-2022-006, titled “Realistic Alternatives and Tax Considerations in the Application of Sections 482 and 367(d).” As the title suggests, the GLAM analyzes the realistic alternatives principle, which was codified in section 482 by the Tax Cuts and Jobs Act (Pub. L. No. 115-97).

The realistic alternatives principle, of course, is not new and has been part of the section 482 regulations since 1993. See Treas. Reg. § 1.482-1(d)(3)(iv); 58 Fed. Reg. 5253, 5266, 5275 (Jan. 21, 1993). But the realistic alternatives regulatory provisions were short on practical substantive guidance. Thus, the GLAM provides new insight into how the IRS currently thinks the realistic alternatives principle ought to be applied. In sum, the GLAM applies concepts from the corporate finance discounted cash flow (“DCF”) valuation method to make its realistic alternative comparisons.Continue Reading GLAM’s Realistic Alternatives Analysis Adopts Corporate Valuation DCF Concepts