The OECD’s Base Erosion and Profit Shifting (BEPS) initiative has increased tax controversies between nations and is likely to continue to do so in the future, Samuel Maruca, U.S. IRS Director of Transfer Pricing Operations said April 30.
“My fear is that some of our treaty partners view this as a license [and are] reaching out and helping [themselves] to the tax base,” said Maruca, who spoke during a webinar sponsored by EY. Maruca said that the increased controversy has put pressure on the U.S. mutual agreement procedure process, and said that the U.S. may have trouble handling the increased workload.
If the BEPS initiative creates a deliberative process that results in consensus around difficult issues, we will take a giant step forward; if not, the result could be “international tax chaos,” Maruca warned.
Maruca said that the U.S. delegation to the OECD believes that just because a risk allocation or structure does not have an analog in the real world, does not mean it can not be priced using the arm’s-length method. He added that a majority of countries appear to side with the U.S. on the issue.
Other countries disagree, however, and argue, for example, that since an early stage pharmaceutical deal at a lump sum price with no contingent payment does not exist in the real world, special measures should be considered rather than arm’s length pricing, he said.
“We are at the table trying to man the ramparts of the arm’s length principle . . . but there is no doubt it is under assault,” he said.
Responding to questions by Ken Christman, EY, Maruca said that the government hopes to complete section 367(d) regulations, dealing with transfers of intangible property to foreign corporations, by year end.
He also said that the IRS’s recently released transfer pricing audit roadmap is not meant to prescribe how to approach a particular case. For example, he said, while the roadmap specifies a 24 month timeframe for the completion of an audit, that timeframe was used only as an example around which the government organized a description of the process. “Any particular case can take 9 months or 39 months, or anywhere in between,” he explained.
The session was moderated by Craig A. Sharon of EY’s Washington, D.C. transfer pricing office. An archive of the webinar will be available on EY’s website in about one week.
