Tax Pros Have High Hopes for IRS Transfer Pricing Audit Tool

Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline, according to the results of a new survey from Big Four firm KPMG LLP.

The web-based survey of some 680 tax directors, vice presidents of tax, and chief tax officers – which was conducted last May during a KPMG TaxWatch webcast focusing on the new roadmap – found that 40 percent of respondents saw a streamlined process as the greatest benefit for taxpayers from the toolkit. Twenty percent expect the roadmap to expand taxpayers’ understanding of the IRS’s transfer pricing concerns, and another 15 percent said it would provide them with enhanced certainty on tax audits.

The Transfer Pricing Audit Roadmap, introduced in February 2014, provides IRS examiners with a practical approach to the identification of transfer pricing issues and the development of issues that merit a full review. It includes tax audit techniques and tools to assist practitioners with the planning, execution, and resolution of transfer pricing examinations.

“Our survey indicates that taxpayers are beginning to align behind the new roadmap and feel it will ultimately make the transfer pricing audit process smoother for them,” Sharon Katz-Pearlman, national principal-in-charge of KPMG’s Tax Dispute Resolution network in the United States, said in a written statement. “We expect increased discussion and a greater focus on the roadmap in the months ahead. Clearly, taxpayers should be thinking of using the roadmap to their advantage in developing a plan for managing a potential examination.”

Fifty-three percent of tax professionals also indicated they expect to expand their preparation for transfer pricing audits with the new roadmap, including performing self-assessments, organizing relevant documentation and files, and having better familiarity with what is publicly available about their company’s profile via the Internet.

Other key survey results include:

  • Some 43 percent said the roadmap addressed their main concerns about the transfer pricing audit process, which typically can include determining specific materials that need to be provided and how long the audit process will take.
  • Twenty-four percent of respondents expected their next transfer pricing audit to be more time-consuming with the roadmap, while 11 percent felt it would be more burdensome. At the same time, 15 percent expected the toolkit to be less burdensome and another 15 percent less time-consuming.
  • When asked the biggest change they expected as a result of the roadmap, 35 percent of respondents said more discussions with IRS representatives of the specifics of transfer pricing arrangements.

“The IRS has indicated that the roadmap will be a ‘work in process,’ and that they plan to update the tool based on taxpayer comments,” Brian Trauman, US national transfer pricing leader for KPMG’s Economic and Valuation Services practice, said in a written statement. “The taxpayer community should take advantage of this opportunity to share their perspectives and help shape the tool for their ease of use.”

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