Client Services / Tax / Transfer Pricing

Transfer Pricing

Our Firm has been extensively involved in transfer pricing planning, compliance and controversy resolution for clients in a variety of industries. Despite voluminous "proposed," "temporary" and "final" government pronouncements, transfer pricing remains very subjective, and the experience of McDermott Will & Emery in this area can be invaluable to clients. While the price of goods exported from or imported into the United States is the most commonly questioned transaction, intergroup licenses, cost sharing agreements, intergroup services and intergroup loans can also create major transfer pricing issues. New penalty provisions, recently issued final regulations under section 482 of the Internal Revenue Code and increased auditing efforts by the Internal Revenue Service and foreign governments have made transfer pricing a critical area for all taxpayers with international operations.

PLANNING
Our lawyers work with clients in transfer pricing planning to avoid, or minimize, controversy with both the Internal Revenue Service and foreign tax authorities. Such planning is necessary to maximize the benefits of operations in low tax jurisdictions and to fully utilize the advantages of special provisions of the Internal Revenue Code including section 936 (operations in possessions) and Foreign Sales Corporations (an incentive for exports from the United States). The planning should be done in a strategic manner, with appropriate legal structures and agreements, and take into account the full range of related tax issues, such as withholding and permanent establishment issues, Subpart F requirements, sourcing benefits, etc. Understanding and integrating other legal disciplines, such as intellectual property law, can be very important. Successful transfer pricing planning can significantly reduce U.S. and/or foreign income taxes as well as facilitating compliance. The attorney-client privilege and work-product doctrine can be very helpful in this regard.

COMPLIANCE
Our Firm can assist clients in preparing the extensive current documentation which is now required under section 6662(e) to avoid substantial (20 and 40 percent) penalties on the tax imposed on any transfer pricing adjustment. In order to avoid these penalties, the annual documentation demonstrating compliance with the section 482 regulations must be completed prior to filing the tax return for the year. These requirements are extensive and complex. The advice of experienced outside counsel will ultimately minimize the substantial compliance cost involved. Foreign-owned U.S. corporations may also be required to furnish additional information under section 6038A. We also have extensive experience in the sometimes unique transfer pricing issues of foreign owned multinationals.

CONTROVERSY
When transfer pricing issues are raised by the Internal Revenue Service or by foreign tax authorities, we are able to provide the assistance and support necessary to resolve the matter on a satisfactory basis. Most transfer pricing cases can be settled at an administrative level in the District, the Appeals Office or through the Competent Authority dispute resolution mechanism provided under many United States income tax treaties. If an administrative solution cannot be reached, McDermott Will & Emery has a large and successful tax litigation group, which can pursue the case effectively in court.

ADVANCE PRICING AGREEMENTS
We have substantial experience in obtaining advance pricing agreements that resolve transfer pricing issues for clients prospectively. We have been involved in numerous advance pricing agreements with the Internal Revenue Service. More recently, we represented a client, which obtained the first formal advance pricing agreement from the UK Inland Revenue. We have also been involved in the advance pricing agreement process with numerous other governments, including Australia, Canada, Japan and Mexico (where we obtained the first agreement for a maquiladora).

Contacts

Tax Client Services

McDermott Will & Emery

McDermott Will and Emery