US IRS reassessing transfer pricing strategy following court losses, unable to sign all country-by-country reporting CAAs

by Julie Martin

US IRS and Treasury officials joined tax practitioners and corporate tax executives today to discuss key international tax and transfer pricing developments at the 30th Annual Institute on Current Issues in International Taxation, cosponsored by George Washington University Law School and the Internal Revenue Service.

The following are highlights from the first day of the two-day conference, held in Washington, DC:

• •  Kirsten Wielobob, Deputy Commissioner for Services, said that the IRS is reviewing its approach to evaluating risk in transfer pricing cases in response to recent court losses in this area. The IRS is taking a “holistic” approach, reassessing how it selects transfer pricing cases for exam, how it analyzes issues, and how it reaches final conclusions. IRS will release a communication on this topic shortly, Wielobob said. Douglas W. O’Donnell, Commissioner, Large Business & International, added that the IRS needs to be sure that the transfer pricing cases it decides to challenge are the correct ones.

• • The US will be unable by year-end to sign competent authority agreements (CAAs) with every tax treaty partner for the exchange of country-by-country reports on multinationals, reported Elena S. Virgadamo, Attorney Advisor, US Department of Treasury. Virgadamo said that while the agency has signed 30 CAAs to date, others remain in negotiation. She was unable to say which CAAs were likely to remain unsigned by the end of the year and advised MNEs to begin to prepare for surrogate and local filing in jurisdictions without signed agreements with the US.

• • Brian H. Jenn, Attorney Advisor, US Department of Treasury, said that EU and other OECD countries have raised concerns about the inbound proposals in the US House and Senate tax reform proposals. Jenns observed that, like countries that have enacted diverted profits taxes or proposed special taxes on the digital economy, the US’s tax reform proposals reveal a dissatisfaction with the existing international tax framework. Jenn said that while other developed countries are mostly focused on taxing the digital economy, the US continues to believe the digital economy should not be ring fenced or subject to special rules. Jenn said the US tax reform proposals, if enacted, will play a role in this discussion at the OECD.  “When you are talking about the factors that go into the concerns that other countries have about the digital economy, those are really issues that are present throughout the broader economy, and so you might see that discussion start to broaden in light of some of the things we are talking about here, ” he said.

• • The IRS would like to hear from practitioners if they are having problems with other countries regarding lack of access to the mutual agreement procedure (MAP) for resolving tax treaty disputes, said Theodore D. Setzer, Assistant Deputy Commissioner (International), LB&I. Setzer said the IRS would engage with the other country to seek to remedy the situation or bring the matter up during engagements with the OECD.

• • Mary C. Bennett, Baker & McKenzie LLP, reported that she has learned that the OECD will resume work on the TRACE project, designed to enable withholding tax relief for publicly traded securities. The project was put on hold while the OECD worked on BEPS and FATCA, Bennett said.

Tomorrow’s conference will feature another full day of discussion.

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Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at [email protected].

@mnetax

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Julie can be reached at [email protected].