Thursday, March 22, 2012

Transfer pricing: sketchiest of the sketchy?

Reuters reports on the uncertain tax position (UTP) filing requirement, under which big corporate taxpayers (those with more than $100,000 in assets) must inform the IRS if they are taking a position that they view as "uncertain or vulnerable to challenge."  In other words, if you're taking a position you know is a little bit sketchy or a little bit dodgy, you're obligated to alert the IRS to it.  According to the IRS commissioner, the two biggest disclosure issues are transfer pricing and research & development credits.  Transfer pricing represents 19% of these disclosures:

IRS Commissioner Doug Shulman said at a congressional hearing that, since the beginning of the year, about 1,900 businesses have filed "Schedule UTP" information.
"A lot of the large business issues are international issues - the most serious one is transfer pricing. That's where we're shifting our large business operation," Shulman said.
...This is an area of frequent and intense international tax disputes between businesses and the agency.
Others have suggested that transfer pricing is basically impossible to police; here is a recent take from Brazil.


  1. Fascinating article re Brazil. Quite brazen of them to throw caution to the wind and find an alternative to external comparables requirement. Its interesting that the framework stays as close to the OECD as possible, but obviously makes sense. What will the larger ramifications of this approach be? Will other developing economies adopt the same or a similar system? Will we see a change of tack by the OECD as economies like Brazil gain strength? Or will we see something like a BRIC alternative to the OECD one day?

  2. Yes, Brazil, has been an outlier in other areas, but eventually came around to follow OECD standards in the past--for example in accepting some version of worldwide taxation in some respects after many decades of adherence to territoriality. India appears also to be taking a more independent stance on transfer pricing. China, on the other hand, appears to follow the OECD in nominal terms at least. I haven't read extensively or met anyone who knows how it works in practice, so can't say if its like the OECD standard in practice.