In determining the likelihood that the position will be sustained under audit, or the expected benefits that will be upheld as a result of an audit, several factors can be taken into consideration.

Fin 48 consolidating video

1504(b)(3)), and the transactions are therefore not eliminated. was performing routine distribution and was charged prices and royalties based on the “resale price method,” which determines the appropriate arm’s-length range by the markups received by comparable distributors in uncontrolled, arm’s-length transactions. The IRS applied the residual-profit-split method, which allocated Glaxo Group profit first between “routine” functions performed by GSK U. and GSK Group, then split the remaining profit according to where the largest part of the value was created.

Transfer prices directly affect the allocation of groupwide taxable income across national tax jurisdictions. 1.482-1(b), the standard to be applied to determine the true taxable income of a controlled taxpayer is that of a taxpayer dealing at arm’s length with an uncontrolled taxpayer. parent company), but also to intercompany services performed. Most foreign tax authorities also specify similar methods to choose from. was that the drugs were developed outside the United States, as was the marketing strategy it used to sell them. Based on the same facts, however, the IRS considered the marketing functions performed by GSK U. to have had a substantial role in creating demand for the drugs, and therefore, GSK U. A TOP TAX CONCERN Because of the inherent uncertainty in satisfying tax authorities and the potential dollar amounts involved, transfer pricing consistently ranks among the top tax concerns for multinationals.

Amazon, AOL, Adobe, Hewlett-Packard, Microsoft, and other multinationals have made headlines because of transfer-pricing disputes over potential adjustments to income ranging from tens of millions to upward of a billion dollars.

However, the impact of transfer pricing could also apply, for example, to a small, closely held manufacturing company in Canton, Ohio, looking to expand overseas.

Although evaluating a company’s transfer-pricing positions depends on its facts and circumstances, a few general insights can shed light on the process companies may go through to identify UTBs related to transfer pricing.

In the recognition phase, any intercompany transaction that could lead to an adjustment of income by the IRS or a foreign tax authority is considered to be an uncertain tax position.To the extent that UTBs that represent probable future taxable amounts must be recognized, transfer pricing may indirectly affect companies’ ability to benefit from deferred tax assets. corporations are not taxed until they are repatriated to the United States.Future taxable amounts resulting from likely adjustments to income relating to transfer-pricing positions may enable a company to lower valuation allowances against deferred tax assets. Under Topic 740, multinational corporations do not need to recognize deferred tax liabilities on those unrepatriated earnings, provided that they are expected to be “permanently or indefinitely reinvested” outside the United States.Transfer pricing is among the networks’ top concerns (see “New LB&I Knowledge Management Strategies: IPGs and IPNs,” , Oct. In the next two years, the IRS will focus more transfer-pricing examination resources on medium-size taxpayers, those with assets as low as million, than before (see “Practitioners Warn Middle-Market Companies of Heightened Transfer Pricing Scrutiny,” , July 18, 2013).TRANSFER PRICING AND FINANCIAL REPORTING Given the uncertainty in a company’s ability to sustain its transfer-pricing positions, transfer pricing can often fall into the category of an uncertain tax position and has a direct impact on a company’s tax provision, with potential indirect effects on the ability to realize deferred tax assets.UTBs associated with uncertain tax positions are reevaluated and updated as new information warrants.