Transfer Pricing Roadmap Released

On December 20, 2017, the Transfer Pricing Operations (TPO) of the Large Business and International (LB&I) division of the IRS released the Transfer Pricing Audit Roadmap to the public. The IRS intends the Transfer Pricing Audit Roadmap to be a practical and user-friendly toolkit taxpayers can reference around a notional 24-month audit timeline.

Since every transfer pricing case is unique, judgment needs to be exercised on how to best use the Transfer Pricing Audit Roadmap guidelines. The Transfer Pricing Audit Roadmap is not intended to serve as a template, but is rather a work in process. Users are encouraged to propose corrections, additions, deletions or other suggestions for improvement.

Two key themes are addressed in the Transfer Pricing Audit Roadmap.  First, in order to maintain an inventory of current cases, LB&I is seeking to get transfer pricing specialists involved in assessing transfer pricing issues at the earliest stage possible—ideally before or at the start of an official audit. The early involvement of specialists will ensure that the audit plan and timeline are appropriate given the complexity of the case and the resources available. In addition, timely involvement can help weed out cases that are not worth pursuing, thereby avoiding a further delay in the inventory of cases to be resolved.

The second underlying theme is that transfer pricing cases are decided on the underlying facts and resulting economic analysis. A compelling story and a thorough analysis of functions, assets and risks (as well as an accurate understanding of the relevant financial information) can positively determine the outcome of a case.  If indications are that the tax results claimed by the taxpayer appear to be contradictory to the economic reality and are likely “too good to be true,” chances are it is a good candidate for further scrutiny. Early identification and aggressive pursuit of cases that show such misalignment are likely to result in heightened audit activity.

In short, aligning a company's business reality and value chain with its transfer pricing policy and compliance documentation will help for a smoother, quicker audit resolution. Taxpayers should also consider the assistance of transfer pricing specialists in the audit process to achieve a more streamlined, efficient, and beneficial audit outcome.