Insights: Article

IRS Targets Transfer Pricing for Foreign Related U.S. Distributors

By Jason Fritts

February 14, 2017

The Internal Revenue Service (IRS) has instituted a new international audit/examination strategy which includes targeting U.S. distributors of goods sourced from foreign-related entities. The goal of the IRS is to identify U.S. distributors who have reported losses or low profits on U.S. tax returns. The IRS believes they can assert that the identified U.S. distributors would have reported higher earnings and increased taxes, if proper transfer price methods were used.

Multinational corporations are allowed to set their own intercompany pricing strategies, but those pricing strategies need to be fair and at arm's-length according to U.S. transfer pricing regulations. Appropriately established transfer pricing strategies are the means by which to ensure compliance with tax rules and regulations. Proper transfer pricing compliance reduces the potential of tax evasion by reducing the opportunity for organizations to improperly transfer revenue from a higher tax jurisdiction to a lower tax jurisdiction.

U.S. distributors with intercompany transactions should have a documented transfer pricing policy in place to address the regulations. Transfer pricing benchmarking, documentation, and training can help businesses minimize compliance risk and reduce the potential for double taxation.

Latest Insights

March 20, 2019
Infographic
If your answer to this question is yes – or you are considering doing business internationally – you probably know there are many fine details that need your attention. Some questions to ask yourself: Do you have related parties in different…
January 15, 2019
Article
The back and forth on tariffs is wreaking havoc for many businesses. Here’s what you can do to help ease the pain.
December 12, 2018
Article
A focus on simplicity in transfer pricing is much easier, accurate, and supportable than the alternative. Review a recent case to learn more about how it works.
November 26, 2018
Article
If you have activity in one of these new campaign areas, you may have a higher likelihood of being contacted by the IRS to have your tax returns examined.
September 12, 2018
Article
The Tax Cuts and Jobs Act, signed December 22, 2017, significantly impacted inbound tax planning. Non-U.S. taxpayers doing business in the U.S. will need to consider the new tax laws.
August 28, 2018
Article
Recently, more companies in the manufacturing industry are becoming involved in foreign transactions, including exporting. However, many are not aware that they can improve their cash flow and reduce their U.S. tax liability through the use of the…