United States: MTC Arm's-Length Adjustment Service (Part II): "An Expression Of Grief, Pity, Or Concern"

Executive Summary

  • Multistate Tax Commission (MTC) transfer pricing program moving forward in some fashion;
  • Priority includes information sharing among participating states (and possibly their third party vendors) on transfer pricing issues. Because a formal agreement was found necessary, the scope of the information shared is presumed to include taxpayer specific information; and
  • States currently have significant inventory of transfer pricing audits that they admit they do not have the expertise to properly examine or defend in a protest.

The inaugural meeting (via conference call) of the Multistate Tax Commission's Committee (Committee) addressing transfer pricing issues (ALAS) took place on April 7, 2016, and was certainly interesting. A predecessor Working Group had created an extensive plan that is intended to be implemented by the Committee over 4 years. The plan initially anticipated that approximately 10 states (at least) would agree to fund the cost of the multi-year program, but meeting that goal has not materialized. Instead, the Committee is moving forward hoping to add more states (or limit services provided) as the plan progresses. The anticipated program has multiple parts such as training, additional MTC staff resources and multistate transfer pricing audit and litigation support for participating states.

Ten states identified themselves on the call – only Pennsylvania was new to the process; the rest of the states on the call had all been involved in the predecessor Working Group. Also on the call was Eric Cook, co-founder of Chainbridge, the company that is currently involved in the controversial transfer pricing approach adopted by the District of Columbia (and previously by some other states). To no one's surprise, all of the states agreed that Joe Garrett, Deputy Co-Commissioner of Revenue of Alabama, should be Chair of the Committee (he was the chair of the Working Group as well). The group will have monthly calls which are open for the public to listen in on.

Importantly for multistate corporate taxpayers, the group identified that a high-priority purpose of the Committee would be to facilitate information sharing among the participating states regarding transfer pricing issues. The Committee hopes to get an agreement in place to start such sharing in the second half of this year. The staff was asked to have a draft agreement, or at least an outline, by the next call in late May—with the goal of having a final draft ready for approval by the Annual Conference & Committee Meetings in late July. It is anticipated that the information sharing will require the inclusion of independent vendors, such as an economist or auditor. Because of the issues this raises, the scope and language of this agreement will be quite important to taxpayers in the future, and will likely increase the importance of: (1) carefully documenting return positions based on inconsistent state laws and (2) multistate consistency in document production positions during an audit.

Early in the call, Garrett noted that it did not matter how well the MTC built the program, they still needed states to participate. Thus, a fundamental and ongoing question was whether the plan needed to be changed. Essentially, many states have not been able to come up with the budget to support the program as a whole as originally envisioned. Several participants asked whether there should be different levels of pricing based on participation. While not raised on the call, one question that comes to mind is whether states could participate only in the information sharing part of the program, or whether that will be used as a reward for full financial support.

Dan Bucks, former MTC Executive Director and former Commissioner of the Montana Department of Revenue, was the advisor that crafted the comprehensive plan with the Working Group. On the call, he emphasized that the program should be seen as a complete package that only the MTC could offer. Not only would the MTC be supporting states in finding taxpayer intercompany pricing problems, but the MTC would also provide its existing programs, such as its voluntary disclosure program, alternative dispute resolution program, and informal resolution during a multistate audit, as remedies for taxpayers to the risk of multiple taxation. Taxpayers have long been concerned about the lack of the equivalent of the federal/international Competent Authority at the state level. There is no mechanism to make compensating adjustments between states. Bucks's suggestion seems to attempt to address this concern. However, the limits of the MTC to act in a "Competent Authority– lite" role became clear when, later in the call Pennsylvania, questioned whether it could fully participate in the program because of possible statutory limitations in participating in the alternative dispute program. Pennsylvania's comment was addressed to how to price the program, but it does demonstrate problems with transfer pricing adjustments at the state level. There is simply no comprehensive process by which pricing adjustments can be made by or at the request of the taxpayer in all of the relevant jurisdictions following an audit.

The ALAS program will also include training. The MTC has already offered transfer pricing training through outside vendors in the past. Currently 6-7 vendors have proposals with the MTC to offer such training programs in the future.

For taxpayers, perhaps the most disheartening point of the 90 minute call was that the states have apparently repeatedly expressed to MTC and ALAS leaders that there is no lack of demand for the program. The problem is that the program has a long start-up time and the states need help now. The difficulty, from some states' perspective, is that the plan is not quick enough. One participant noted that all of the states he had spoken to had an inventory of pending transfer pricing cases. Several participants noted that states acknowledged they don't know how to audit and defend such cases. While it is understandable that if a state thinks there is an intercompany pricing problem they will want to fix it, but it really is not fair to taxpayers for states to either spend time learning the transfer pricing regime during an audit or issue deficiencies that are unsupportable in litigation. This is an expensive approach to audit and can only result in some precedential case law that binds the states in unintended ways. For taxpayers of course, the message is, 'hang in there, get the assessment and then head to court. You have a strong chance of winning.'

Finally, an interesting side point was a request from an MTC staff member to incorporate some type of help for participating states in defining and defending economic substance arguments. It was noted that even before pricing becomes an issue, the state must determine whether a given transaction (or structure) has economic substance.

More information on the project can be found at http://www.mtc.gov/The-Commission/Committees/ALAS.

Finally, if any of this is troubling to you, we encourage you to check out the DC Bald Eagle Nest Cam and "take it easy" prior to calling the authors to discuss these state transfer pricing developments.

MTC Arm's-Length Adjustment Service (Part II): "An Expression Of Grief, Pity, Or Concern"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions