Did you know that the IRS is increasing scrutiny around transfer pricing?

Transfer pricing is the method used to set a price for goods and services sold between related legal entities within a business structure.  For example, if a foreign subsidiary sells goods to its parent company, the cost of those goods is the transfer price.

Transfer pricing policies are especially important when it comes to global structures.  Although the provisions restrict arbitrary profit assignments, transactions can be structured within the context of the rules to be as tax efficient as possible.  Transactions with foreign related parties must be at an arm’s length rate supported by an appropriate method and documentation.

Transfer pricing penalties are stiff and can sometimes be significant.  Penalties for failure to set appropriate pricing can be 20-40 percent of incremental tax due.  It’s important to remember that proper documentation must be in place before the tax return is filed to reduce exposure.  In general, proper documentation would include all intercompany transactions as well as details and method descriptions that support the pricing used in those intercompany transactions.

The IRS and similar authorities in other countries are strictly enforcing having an appropriate price (and appropriate documentation) for intercompany transactions.  Companies should review their intercompany transactions and policies related to pricing every year to minimize risk and exposure.


After nearly a decade in power, voter discontent and a sluggish economy spurred Canada’s voters to unseat Conservative Stephen Harper in favor of the Liberal Party’s Justin Trudeau in Canada’s October 19th National Election.  Trudeau’s Liberal Party also secured the first liberal majority in 15 years, taking 187 of the 338 districts across the country.

Trudeau, son of long-time Prime Minister Pierre Trudeau, was elected on a promise of change and “A New Plan for a Strong Middle Class.” He plans to stimulate the economy by running C$10 billion annual budget deficits for three years, largely to invest in infrastructure and renewable energy. This is in sharp contrast to Harper’s focus on balancing the budget and running a surplus.

Trudeau’s campaign also promises to focus on increasing taxes on top earners while cutting taxes for the middle class. He intends to enhance existing tax measures aimed at making Canada a leading jurisdiction for investments in research, development, and clean technology manufacturing. Plans are to leave the federal corporate tax rate unchanged at 15 percent.

So how is the economy reacting to this change? The Canadian dollar gained slightly against the USD the day after the election and then fell to near three-year lows the following week. The Bank of Canada left interest rates unchanged on October 21st while slightly decreasing growth forecasts.  Both the economy and the currency continue to be significantly impacted by weak oil prices.


Puerto Rico’s Sales and Use Tax Goes Up to 11

October 29, 2015

On Oct. 1, Puerto Rico’s Sales and Use Tax (SUT) increased from 7 percent to 11.5 percent. The change also incorporates a special 4 percent SUT on certain business-to-business services that were previously exempt. While the revised law continues to allow some companies an SUT exemption on certain services, companies located within Puerto Rico but […]

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Proposed Regulations May Eliminate the Goodwill Exception…But There’s Still Time

October 15, 2015

On September 14, 2015, the IRS issued proposed regulations that eliminate the goodwill exception in outbound transfers of intangible assets. If finalized, these regulations will drastically change the way foreign entity transfers are treated and, unlike most proposed regulations, they’ll go into effect immediately, with retroactive application. Could these changes affect you? It’s very possible. […]

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Good News: Certain FATCA Transitional Rules Have Been Extended

October 1, 2015

In a welcome announcement, certain transitional rules to implement aspects of the Foreign Account Tax Compliance Act (FATCA) have been extended. Issued on September 18, 2015, this notice announces that the Department of Treasury and the Internal Revenue Service intend to amend the regulations to extend the period of time the transitional rules will apply. […]

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It’s Not You; It’s the Audit Rotation Rules

September 17, 2015

Although some U.S. companies have a history of changing audit firms, many have developed long-term relationships with their auditors. After all, we’re known for adding life to any party—what’s not to love? These relationships may be cut short, however, due to the audit rotation rules governing a company’s foreign parent. Most countries have developed their […]

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Reminder- Do You Have an IMMEX Level “A” Certification? It’s Time to Renew.

August 31, 2015

Back in October 2013, the Mexican government published a few revisions to the IMMEX decree, including requiring participating companies to obtain a certification in order to qualify for certain tax and customs benefits. If your company received a Level “A” certification during 2014, it’s only valid from January 1, 2015, through December 31, 2015. You’ll […]

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Intellectual Property May Soon Be Deductible

August 25, 2015

What if we told you that you could deduct 71 percent of your company’s income derived from qualifying intellectual property (IP)—that patents, inventions, formulas, processes, knowhow, computer software, and any other IP could qualify? Thanks to the Innovation Promotion Act of 2015, that could soon be the case. Charles Boustany and Richard Neal, two members […]

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Currency Instability Exposes Accounting Policy Weaknesses

August 6, 2015

Economic volatility in Greece, Russia, Venezuela, Brazil, and other major countries has decreased demand for many local currencies and increased the demand for U.S. dollars. This has resulted in a devaluation of most major currencies over the last 12 months: 8 percent for the British pound, 19 percent for the Canadian dollar, 21 percent for […]

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China Eases Restrictions on the Currency Control System

May 26, 2015

On March 30, 2015, the Chinese State Administration of Foreign Exchange (SAFE) eased its restrictions on the currency controls system. This means an increase in the flexibility of Foreign Invested Enterprise (FIE) currency management in China, with an aim to allow companies to settle their foreign exchange capital and to hedge currency risks. Briefly, the […]

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