by Ulrika Lomas,, Brussels

01 May 2020

On April 16, 2020, the United States Internal Revenue Service issued a set of frequently asked questions and answers to help inform taxpayers about transfer pricing documentation best practices.

The IRS said that the FAQs are based on its observations of best practices and common mistakes in preparing transfer pricing documentation. They are therefore intended to provide taxpayers with insights on the type of information they should provide to the IRS to raise their chances of audit deselection or to increase the efficiency of the audit process.

The IRS says that the suggestions and recommendations are consistent with the requirements in the relevant regulations to provide adequate and reasonable support for the arm’s length nature of intercompany pricing.

However, the agency emphasized that the information and examples provided in the FAQs are high-level and should not be relied on to analyze actual transactions.

The six FAQs have the following headings:

  • What benefit(s), in addition to potential protection against penalties pursuant to IRC Section 6662(e)(3)(B), might there be for taxpayers who invest in robust transfer pricing documentation?
  • How can a “self-assessment” help to anticipate questions and prepare better 6662(e) documentation?
  • What is the IRS’s guiding principle in establishing arm’s-length prices were charged in intercompany transactions?
  • What are some areas the IRS has identified in transfer pricing documentation reports that could benefit from improvement?
  • What are some features of the most useful transfer pricing documentation reports?
  • Can you provide an example of a presentation of a company’s intercompany transactions that would be a helpful summary for examiners to use in risk assessment?

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