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Transfer Pricing
Essentials
Steven C. Wrappe
KPMG LLP
Washington, D.C.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.2
Notice
The following information is not intended to be “written advice concerning one or more
Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury
Department Circular 230.
You (and your employees, representatives, or agents) may disclose to any and all
persons, without limitation, the tax treatment or tax structure, or both, of any
transaction described in the associated materials we provide to you, including, but not
limited to, any tax opinions, memoranda, or other tax analyses contained in those
materials.
The information contained herein is of a general nature and based on authorities that
are subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.3
Outline
• What is Transfer Pricing?
• Why is it Different/Important?
• Conceptual Framework
• Transfer Pricing Methods
• Intangibles
• Services
• Penalty Rules
• Transfer Pricing Controversy
What Is Transfer
Pricing?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.5
What is Transfer Pricing?
•Transfer pricing refers to pricing of transactions between related parties for:
— Tangible property
— Intangible property
— Services
— Rents
— Loans
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.6
What is Transfer Pricing?
• Related party aspect of the transactions suspends the normal laws of supply and demand
• Without governmental restraint, related parties could use transfer pricing to artificially shift income to achieve tax benefits
• IRC § 482 and similar statutes in other countries prevent related parties from artificially shifting income to achieve tax benefits
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.7
What is Transfer Pricing?—Opportunity
Transfer Pricing Planning Opportunity
Parent
(Country A)
Sub
(Country B) Consolidated
Total profit reported on tax return 700 300 1,000
Tax rate 40% 10%
Tax liability before change to transfer price 280 30 310
Global Effective Tax Rate (“ETR”) 31%
Effect of Transfer Pricing Change on ETR
Total profit after using transfer pricing to shift 400 of income 300 700 1,000
Tax rate 40% 10%
Tax liability after change to transfer price 120 70 190
Global ETR 19%
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.8
What is Transfer Pricing?—Exposure
Exposure to Double Taxation
Parent
(Country A)
Sub
(Country B) Consolidated
Total profit reported on tax return 300 700 1,000
Tax rate 40% 10%
Tax liability before Country B transfer pricing adjustment 120 70 190
Global Effective Tax Rate (“ETR”) 19%
Double taxation effect on ETR
Total profit after adjustment (increase in profits) by Country A of 400
(assumes no correlative relief in B)
700 700 1,400
Tax rate 40% 10%
Tax liability after Country A transfer pricing adjustment (penalties and
interest not included)
280 70 350
Global ETR 35%
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.9
What is Transfer Pricing?The Accounting Perspective
Manufacturer Distributor Total
Sales Transfer Price 15,000 15,000
COGS < 10,000 > < Transfer Price > < 10,000 >
Gross Profit (____%) _________ (____%) _________ 5,000
S, G & A < 1,750 > < 1,250 > < 3,000 >
Net Operating Income (____%) _________ (____%) _________ 2,000
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.10
What is Transfer Pricing?The Tax Perspective
Section 482– In any case of two or more organizations, trades, or businesses
(whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. In the case of any transfer (or license) of intangible property (within the meaning of Code Sec. 936(h)(3)(B)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible.
Why Is Transfer
Pricing Different/
Important?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.12
Why is Transfer Pricing Different/Important?
• Subjective application of the rules
• Potentially large adjustments and penalties
• Procedural options
• Double taxation exposure
• Figures prominently in financial statement disclosure (FIN 48)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.13
Why is Transfer Pricing Different/Important?
• Transfer Pricing In the News
― Glaxo litigation
― FIN 48/UTP Form implications
― OECD Base Erosion and Profit Shifting Project
― “Inversions” produce transfer pricing issues
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.14
The Public Debate
“Starbucks paid just
£8.6M in U.K. tax over
14 years.” BBC News,
October 16, 2012
“From now on I’ll be putting away my Kindle
and feeding my caffeine addiction
somewhere other than Starbucks. We know
that Amazon, Google and Starbucks are
raking in profits from their economic activity
in Britain but using a range of devices to
avoid paying their fair share of corporation
tax.” U.K. Observer, November 18, 2012
“[Google’s] highly contrived tax
arrangement has no purpose other than
to enable the company to avoid U.K.
corporation tax.“ Margaret Hodge, Chair
of U.K. PAC, June 12, 2013
“Apple pays just 2% U.K. tax as
Amazon and Google face
questioning.” International Business
Times, November 5, 2012.
“Google caught in
crossfire over French tax
planning.” Le Figaro,
October 19, 2012
“International retailers that have lowered
U.K. tax by holding trademarks in the
Netherlands include not only Starbucks and
IKEA but also SABMiller, Nike, Bacardi-
Martini, Zara, Speedo and Volkswagen.
Het Financieele Dagblad, 15 November
2012
“Google insists its Irish
headquarters are more than
just a ‘post box.’” Le Figaro,
November 6, 2012.
“Dolce and Gabanna to face trial over tax
evasion Milan prosecutors allege the
fashion had sold their D&G and Dolce &
Gabbana brands to a holding company
they set up in Luxembourg in 2004 in
order to avoid paying high taxes in Italy.”
The Telegraph, June 11, 2012
“There is a technical term economists like to use for
behavior like this. Unbelievable chutzpah.” Edward
Kleinbard, former Chief of Staff of the Congressional
Joint Committee on Taxation, on Apple’s efforts to
avoid paying taxes.” New York Times, May 21, 2013.
“Rampant corporate tax
avoidance may not be
illegal, but that doesn’t make
it right or fair.” NY Times
Editorial, May 25, 2013
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.15
Global Introduction of Transfer Pricing Rules
Korea (Republic
Slovak Republic
United Kingdom
Korea (Republic
Slovak Republic
United Kingdom
of China)
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ThailandTurkeyUkraine
United StatesVenezuelaVietnam
ArgentinaAustraliaAustriaBelgiumBrazilCanadaChile
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ThailandUkraineUnited KingdomUnited StatesVenezuelaVietnam
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Conceptual
Framework
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.17
Conceptual Framework
• Control
• Arm’s length standard
• Best method rule
• Comparability
• Arm’s length range
• Transfer pricing methods
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.18
Conceptual Framework
• Control“Controlled”- Reg. §1.482-1(i)(4) – includes any kind of control, direct or indirect, whether legally enforceable or not, and however exercisable or exercised, including control resulting from the actions of two or more taxpayers acting in concert or with a common goal or purpose. It is the reality of control that is decisive, not its form or the mode of its exercise. A presumption of control arises if income or deductions have been arbitrarily shifted.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.19
Conceptual Framework
• The Arm’s-Length Standard– An intercompany transaction is arm’s length if results
are same as results realized by uncontrolled taxpayers engaged in same transaction under same circumstances
– Identical uncontrolled transactions generally not available; appropriate to consider comparable uncontrolled transactions
– Analysis of independent, uncontrolled comparable transactions is at center of all transfer pricing analysis
– The arm’s-length standard is fundamental basis of worldwide transfer pricing regulations
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.20
Conceptual Framework
• “Best Method” Rule
– No hierarchy of methods specified
– Best method provides most reliable measure of arm’s-length result
– Best method varies depending on facts and circumstances
– If no clear best method, convergence of results
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.21
Conceptual FrameworkTransfer Pricing Methods
Tangible property Intangible property Services (Temporary)
CUP
(Comparable Uncontrolled Price Method)
CUT
(Comparable Uncontrolled Transaction
Method)
CUSP
(Comparable Uncontrolled Services
Price Method)
RPM
(Resale Price Method)–
GSM
(Gross Services Margin Method)
Cost Plus
(Cost Plus Method)–
CSPM
(Cost of Services Plus Method)
CPM
(Comparable Profits Method)
(cf. to TNMM in OECD Guidelines)
(Transactional Net Margin Method)
CPM / TNMM
(Commensurate with income rules)CPM
PSM
(Profit Split Method)PSM PSM
CPS (Comparable
Profit Split Method)
RPS (Residual
Profit Split
Method)
CPS RPS CPS RPS
– –SCM
(Services Cost Method)
Unspecified Methods Unspecified Methods/ Cost Sharing –
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.22
Conceptual FrameworkComparability
• Purpose- uncontrolled transactions must be sufficiently similar to controlled transactions to provide a reliable measure of the arm’s-length result (i.e., allow taxpayer to characterize tested party in order to find comparables)
• Five Factors:– Functions performed– Contractual terms– Risks assumed– Economic and financial conditions– Nature of property or services transferred
• Each transfer pricing method places priority on different factors
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.23
Conceptual Framework
• The Arm’s-Length Range
– In most cases it is not possible to identify a single price that would occur between unrelated parties
– Arm’s-length range results from use of two or more uncontrolled transactions of similar reliability and comparability
– No adjustment if results of controlled transaction are within arm’s-length range
Transfer Pricing
Methods
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.25
Transfer Pricing MethodsOverview
Tangible property Intangible property Services (Temporary)
CUP
(Comparable Uncontrolled Price Method)
CUT
(Comparable Uncontrolled Transaction
Method)
CUSP
(Comparable Uncontrolled Services
Price Method)
RPM
(Resale Price Method)–
GSM
(Gross Services Margin Method)
Cost Plus
(Cost Plus Method)–
CSPM
(Cost of Services Plus Method)
CPM
(Comparable Profits Method)
(cf. to TNMM in OECD Guidelines)
(Transactional Net Margin Method)
CPM / TNMM
(Commensurate with income rules)CPM
PSM
(Profit Split Method)PSM PSM
CPS (Comparable
Profit Split Method)
RPS (Residual
Profit Split
Method)
CPS RPS CPS RPS
– –SCM
(Services Cost Method)
Unspecified Methods Unspecified Methods/ Cost Sharing –
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.26
Transfer Pricing MethodsComparable Uncontrolled Price (“CUP”)
• General Observations– Based on direct observation of market price– Internal comparables most common– Always the best method if comparable transactions are
available• Concerns:
– Degree of comparability– Information is limited regarding intermediate products– Differences in design, intangibles, volumes, timing, terms,
functions, and geographic markets affect price– Reliable and complete data
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.27
Transfer Pricing MethodsCUP (cont.)
• Internal CUPs
– Related party buys from or sells to 3rd party
– Generally good comparability and data
• External CUPs
– 3rd party-to-3rd party transactions
– Generally found by searching publicly available data
– Comparability and data concerns
– Seldom used due to data needs
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.28
Transfer Pricing MethodsResale Price Method
• General Observations
– Typically used for distributors
– Functional comparables with similar risks and routine intangibles
• Application of Resale Price Method
– Gross profit margin (“GPM”) derived from uncontrolled transaction as a percentage of sale
– Subtract appropriate GPM from end user resale price to arrive at transfer price
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.29
Transfer Pricing MethodsCost Plus Method
• General Observations– Routine manufacturing and service operations– Generally not used for distributors– Assures constant return to manufacturer; shifts general risk to the
distributor
• Application of Cost Plus Method– Prices based on gross profit markup (“GPM”) earned by functional
comparables, over fully absorbed costs– Note: General industry GPM may be used absent transactional data
• Concerns:– Comparables need similar
• Functions, risks & routine intangibles• Production process• Cost structure
– Accounting consistency is essential– Gross profit data typically difficult to obtain for non-U.S. based
companies
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.30
Transfer Pricing MethodsComparable Profits Method (“CPM”)
• Operating margin most often used• Typically applied to test routine distribution or manufacturing
functions• Relies on functional comparability; product comparability is
less important• Common use:
– Product comparables not found, or accounting comparability is not assured
– One affiliate performs routine functions– Comparables identified with general similarity of products
and functions• OECD has Transaction Net Margin Method (TNMM)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.31
Transfer Pricing MethodsCPM (cont.)
• Profit Level Indicators– Operating margin = operating profit / sales
– Return on assets = operating profit / assets actively employed in the business (usually tangible assets)
– Berry ratio = gross profit / operating expenses
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.32
Transfer Pricing MethodsCPM (Operating Margin)
Manufacturer Distributor Total
Sales 15,000 15,000
< COGS > < 10,000 > < > < 10,000 >
Gross Profit (____%) _________ (____%) _________ 5,000
S, G & A < 1,750 > < 1,250 > < 3,000 >
Net Operating Income (____%) _________ ( 3 %) 450 2,000
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.33
Transfer Pricing MethodsProfit Split
• Profit Split Methods– Residual profit split– Comparable profit split
• General Conditions for Use– Each party must have valuable, non-routine contributions
that contribute significantly to profits– Significant transactions to establish comparability– Administrative requirements
Intangibles
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.35
IntangiblesDefinition
• Asset with substantial value independent of services of any individual and derives its value not from its physical attributes but from its intellectual content or other intangible properties
• Common examples:– Patents, inventions, formulae, processes, designs, patterns, or know-
how– Copyrights and literary, musical, or artistic compositions– Trademarks, trade names, or brand names– Franchises, licenses, or contracts– Methods, programs, systems, procedures, campaigns, studies,
forecasts, estimates, customer lists, or technical data– Other similar items
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.36
IntangiblesOwnership/Consequences
• Ownership of intangible is important because owner is entitled to compensation for transfer or license of intangible
• Legally protected intangible: legal owner or holder of rights treated as owner
• Not legally protected intangible: controlled taxpayer who has control of intangible treated as owner
• Multiple ownership of intangible property: no longer subdivided
• Controlled taxpayers who assist owner in development or enhancement of intangible are entitled to arm’s length compensation
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.37
IntangiblesMethodologies
• Comparable Uncontrolled Transaction (“CUT”) Method: generally most direct and reliable measure of arm’s length result if same intangible is transferred in controlled and uncontrolled transaction– CUT method may also provide most reliable measure of arm’s length result in
situations with an “inexact CUT”
• Comparable Profits Method (“CPM”): evaluates whether amount charged in a controlled transaction is arm’s length based on objective measures of profitability
• Profit Split Method (“PSM”): compares allocation of combined operating profit or loss attributable to controlled transactions to relative value of each controlled taxpayer’s contribution – Comparable Profit Split Method– Residual Profit Split Method
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Intangibles“Commensurate with Income”
• 482 amended in 1986 to require related party payments re: intangibles to be “commensurate with income”
• Periodic adjustments: consideration charged is subject to an annual adjustment
• Exceptions
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.39
IntangiblesCost Sharing Alternative
• Primary tax benefit of cost sharing is all participants considered owner of an interest in the intangible, precluding the transfer pricing rules for intangibles
• Cost sharing is a practical alternative to cross-border licensing
• New cost sharing regulations significantly limit the use of a cost sharing
Intercompany
Services
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ServicesDefinition
• Any activity by one member of a group of controlled
taxpayers that results in a benefit to one or more other
members of controlled group
• Activity is defined broadly to include:
― Performance of functions
― Assumption of risks
― Use by a renderer of tangible or intangible property or other
resources, capabilities, or knowledge
― Making available any property or other resources of the renderer
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Services—Specified Methods
• Services cost method (SCM)
• Comparable uncontrolled services price
• Gross services margin—similar to Resale Price
• Cost of services plus—similar to Cost Plus
• Comparable profits
• Profit split
Penalty Rules
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Section 6662 Penalty
Substantial Valuation
(20% penalty)
Transactional Net Adjustment
Price or value is 200% or
more (50% or less) than the
correct amount
Net adjustment exceeds the
lesser of $5 million or 10% of
gross receipts
Gross Valuation
(40% penalty)
Net adjustment exceeds the
lesser of $20 million or 20% of
gross receipts
Price or value is 400% or
more (25% or less) than the
correct amount
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Section 6662 PenaltyContemporaneous Documentation Requirements
• Ten principle documents required to fulfill contemporaneous documentation requirements:1. Overview of taxpayer’s business
2. Description of organizational structure
3. Documentation explicitly required under Section 482 (such as license agreements)
4. Description of method selected and reason for selection
5. Description of alternative methods not used and reason for not using them
6. Description of controlled transactions and internal data
7. Description of comparables and adjustments (if any)
8. Explanation of economic analysis and projections used
9. Description of data obtained after tax year and before filing return
10.General index of documents
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Section 6662 Penalty
• Good Faith Exclusion– Valuation misstatement penalties may be waived if
taxpayer can show good reason to believe the company was following the arm’s-length standard in application of the transfer prices.
– Net adjustment penalty- may only be satisfied by documentation
– Two elements are required for the “Good Faith Exclusion”:• Reasonable effort (to establish the arm’s-length nature of prices)• Reasonable belief (that the transfer pricing methodology produced
an arm’s-length result)
– A taxpayer may gain reasonable belief through reliance on a professional tax advisor.
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Transfer Pricing Documentation
• Factual analysis– Taxpayer’s Group– Industry– Transactions– Functions– Risks– Intangibles
• Economic analysis– Transfer Pricing Methodology– Comparable Search– Adjustments
Transfer Pricing
Controversy
TP Dispute Procedural Flowchart
Pre-opening or Opening
conference: Start
of Examination
File Return
T/P return selected for
Examination
IRS issues either initial
contact letter or initial
telephone contact
Consider obtaining an Advance Pricing
Agreement (APA) pursuant to Rev.
Proc. 2006-9.
1. Consider extending Statute of
Limitation;
2. T/P considers information to be
provided to IRS and IRS tools for
obtaining the information.
IRS starts detailed
Transfer Pricing
Examination
IRS issues Form 5701 “Notice
of Proposed Adjustments.”
Does T/P agree?
IRS issues Form 4564
“Informal Document
Request” (IDR)
No
Yes
Yes
No
If CIC* Audit, are there any issues
which should be sent to Appeals. “Early
Referral to Appeals” (Pursuant to Rev.
Proc. 99-28)
•IRS and/or T/P should consider if any issue
requires Field Service Advice or Technical
Advice;
•Consider CA**/SAP***, pursuant to Rev.
Proc. 2006-54;
•Consider whether IRS Examination may
resolve open issues, pursuant to Del. Ord.
236 (Rev. 3).
•Consider “Fast-Track” Guidance under Rev.
Proc. 2003-40.
IRS issues 30-day letter
“Preliminary Notice of
Deficiency.” Form 4665,
Publication 5. Pub. 586A
Sign Form 5701 as agreed
and proceed to close
Examination
•Consider correlative and
corresponding adjustments;
•Consider refund request in
foreign jurisdiction.
Does T/P want to
settle issue in
Appeals?
After 30 days expires, IRS
Issues 90 day letter “Notice of
Deficiency” or Statutory Notice
Consider CA**/SAP***,
pursuant to Rev. Proc.
2006-54
Does T/P
petition Tax Court?
T/P pays tax
deficiency; does T/P
agree?
NoYes
Docketed Tax Court
•Consider Docketed Mediation;
•Consider Tax Court Rule 124
(Voluntary Binding Arbitration).
Proceed to close case
and consider CA**
Yes
T/P files for refund;
Refund granted?
No
Previous Appeals review?
T/P accepts;
proceed to close case,
consider CA**
Go to Appeals for
review, consider SAP***
YesNo
Refund Appeals:
Agreement reached?
T/P files with
District Court or Federal
Claims Court
Proceed to close case,
consider CA**
No
Yes
Yes
Proceed with
Tax Court Case
Decision may be
Appealed to Circuit Court
of Appeals
Decision may be appealed via
grant of cert. to Supreme Court
Docketed Appeals: May have case
reviewed by Appeals Officer
Agreement at
Appeals?
Proceed to close case,
consider CA**
Yes
No
No
Does T/P require
Additional time to prepare
and file protest with IRS?
Yes
Non-Docketed Appeals: (a) file written
protest within 30 day period; (b) do not
pay tax – consider cash bond; (c)
consider SAP***.
No
May request additional time to file
protest in writing – generally IRS
will grant an additional 30 days.
T/P and IRS agree to a
resolution In Appeals?
Appeals issue 90 day letter;
Agreement reached?
Proceed to close case,
Consider CA**
Yes
No
No
Proceed to close case,
consider CA**
Yes
KEY
*CIC – Coordinated
Industry and Industry
Case Program
** Competent Authority
*** Simultaneous
Appeals/Competent
Authority Procedure
T/P consider mediation, pursuant
to Rev. Proc. 2002-44 or arbitration
under Rev. Proc. 2006-44;
Agreement reached?
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• The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
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