Transfer Pricing Enforcement Views ‘Entire Landscape': IRS

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing. 

By Alison Bennett

June 8 — The IRS will look at a company's worldwide situation in deciding on transfer pricing enforcement under a new agency structure, a senior agency official said.

“It's clear you shouldn't make a transfer pricing adjustment unless you understand the global environment,” Theodore Setzer, Internal Revenue Service assistant deputy commissioner (international), said June 8.

The issue is a crucial one for companies doing business in many nations.

The question of whether other countries are assessing tax on the same income or the same transaction “needs to be taken into account in deciding what the United States position is going to be,” Setzer said at a transfer pricing conference sponsored by Bloomberg BNA and Baker & McKenzie LLP.

Structure Aims for Balance

For that reason, he said, the newly restructured Large Business and International Division has a single person overseeing both the compliance enforcement function within transfer pricing and the competent authority function. “We'll have one person charged with seeing the entire landscape,” the IRS official said.

More broadly, Setzer said, the division restructuring is intended to allow the IRS to decide ahead of time where it would be best to target enforcement resources.

By structuring those efforts around “campaigns,” he said, “it gives us an opportunity to step back and identify issues of strategic importance at the beginning.”

His role, Setzer said, is to “harmonize the work we've had and the work we're doing with treaty partners.”

To do that, the IRS needs to scrutinize tax and financial data pouring in under major global initiatives such as the OECD's effort to combat base erosion and profit shifting and the U.S. Foreign Account Tax Compliance Act, he said.

Setzer said the challenge is to find nuggets of information in that data that can be shaped into “intelligence” that will help the agency direct its compliance efforts.

To contact the reporter on this story: Alison Bennett in Washington at abennett@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com