For international businesses, transfer pricing is a significant income tax consideration as the taxpayer may be scrutinized for related party transactions. On January 12, 2018, the Internal Revenue Service (IRS) issued directives to its examination division, regarding various transfer pricing related matters. U.S. Taxpayers with international operations should carefully review the IRS directives, which cover the following areas:
- Interim instructions on issuance of mandatory transfer pricing information document request (IDR) in large business and international (LB&I) examinations.
- Instructions for examiners on transfer pricing issue examination scope — appropriate application of Section 6662(e) penalties
- Instructions for examiners on transfer pricing selection — cost-sharing arrangement stock-based compensation
- Instructions for examiners on transfer pricing selection — reasonably anticipated benefits in cost-sharing arrangements (CSAs)
- Instructions for LB&I on transfer pricing selection and scope of analysis — best method selection
While these examination directives are important to note, these directives do not establish legal guidance.
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