Inter-company pricing under intense scrutiny

In February 2004, the International Director of the Internal Revenue Service, Robert Green, stated that his office is working with other IRS officials and the Treasury Department to draft provisions to better enforce their penalties, including those that apply to transfer pricing. He conveyed that the Section 6662(e) and (h) penalties for transfer pricing adjustments are often not invoked and need to be a greater deterrent. This announcement followed the hiring of a significant number of IRS International Examiners to more aggressively enforce the 30-day deadline for delivery of transfer-pricing documents when requested by the IRS.

Section 6662(e) provides for a 20 percent substantial valuation misstatement penalty when the transfer price claimed for any property or service is 200 percent or more—or 50 percent or less—than the IRS-determined amount, or when the net transfer pricing adjustment for the taxable year exceeds the lesser of $5 million or 10 percent of gross receipts. Section 6662(h) imposes a 40 percent penalty when the transfer price claimed is 400 percent or more—or 25 percent or less—than the amount IRS determined, or when the net transfer pricing adjustment for the taxable year exceeds the lesser of $20 million or 20 percent of gross receipts. 

Asher & Company, Ltd. works with our Moore Stephens affiliates to prepare the transfer-pricing documentation mandated by the IRS. Given the increased scrutiny and continued hiring of IRS International Examiners, taking a proactive stand on transfer pricing makes more sense now than ever. Don’t wait until you get your 30-day deadline notice for the IRS. Contact us today.

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