Worldwide transfer pricing reference guide 2014

United States (continued)
Return disclosures/related party disclosures
Under new regulations issued in 2010, certain taxpayers must also disclose their uncertain tax positions (UTPs) on Schedule UTP, and
provide information such as the ranking of the positions by the size of their reserves, and concise descriptions of the tax positions. There
is a phase-in period so that by 2014, the UTP disclosures will be required by corporations with assets of US$10 million or more.
Transfer pricing-specific returns
Taxpayers are required to file Forms 5471, 5472, and 8865 regarding transactions with related parties.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
The likelihood of an annual tax audit is dependent on the facts and circumstances. The introduction of high risk transactions increases
the likelihood of a tax audit.
In general, the risk of transfer pricing scrutiny during a tax audit is high. Transfer pricing is extensively regulated in the US and the
IRS has recently taken a number of administrative steps to increase its ability to focus on international transactions, with particular
emphasis on transfer pricing. New positions have been created within the IRS’s Large Business and International + Division for a “Deputy
Commissioner (International)” and a “Director of Transfer Pricing Operations” and a significant number of transfer pricing professionals
have been hired. As a result of this emphasis, documentation is frequently requested at the outset of any examination of taxpayers
transacting with foreign related parties.
The overall likelihood that the transfer pricing methodology will be challenged during the initial stages of any audit, where there are
international transactions, is high. However, experience has shown that well-reasoned documentation reduces the likelihood of further
scrutiny.
APA opportunity
Taxpayers may request unilateral, bilateral or multilateral APAs. The APA process is administered by the IRS’s APMA Program. Guidance
regarding APAs can be found in Rev. Proc. 2006–9. The revenue procedure has strict case management procedures, disclosure
requirements, and detailed guidance regarding the submission and processing of APA requests. Additional competent authority guidance
is provided in Rev. Proc. 2006–54. Updates to both Revenue Procedures are expected to be issued sometime in 2014.
Expected reaction to OECD Report on BEPS
The US Treasury is part of the BEPS Committee and is supportive of the BEPS effort. Some taxpayers have reported that the IRS has
already begun implementing BEPS concepts. Additional governmental responses to the BEPS action plan are as follows:
In November 2013 the US Competent Authority noted that Action Item 14, (Effectiveness of Treaty Dispute Resolution Mechanisms), will
put more pressure on competent authorities worldwide to ensure that mutual agreement procedures are up to date at a time when MAP
programs are facing restricted resources.
US governmental officials in the House, Senate and Treasury have stated that the US will not delay its own current efforts at tax overhaul
to address base erosion by waiting for the OECD BEPS project to come to fruition.
The US Treasury commented that any measure taken under BEPS Action Item 1, (Tax Challenges of the Digital Economy), must be wary
of creating special rules for taxing the delivery of digital goods and services that could result in stripping income out of the US.
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