The accountant's challenge.

• Author: Morris, Daniel D.
• Position: Transfer Pricing & the Brave New World

In recent years, corporations implementing strategies for multinational sourcing, production and distribution have grown increasingly concerned with setting twister prices that meet both tax and business objectives. The challenge for CPAs and company management is to establish internal transfer pricing policies that promote sound resource allocation decisions and minimize audit risk, while still providing constructive measures of performance and profit incentives to unit managers.

Risk Management

During the past decade; a growing number or governments--with an ever expanding degree of vigor--have placed emphasis on transfer pricing compliance, tax revenue collected, and the methods by which multinational enterprises measure, recognize, report and document their taxable income. It has evolved beyond the focus or the United States and foreign federal tax authorities, and is given significant consideration by the SEC; state and local tax authorities; and even extends to the international political arena of the United Nations and the Organization for Economic Cooperation and Development.

Transfer pricing is often discussed by policymakers in the media and is recognized by the C suite as one of the top-three issues in corporate tax risk management. The attention to related-party transactions and to transfer pricing policies of multinational enterprises has elevated the issue beyond tax departments into the mainstream of public consciousness.

News reports about companies' transfer pricing policies, and the subsequent value judgments and social commentary made by reporters and politicians, are becoming quite commonplace.

Given these very public discussions, a firm's transfer pricing policies may impact its global brand, as well as public perception of its commitment to social equity.

Too, transfer pricing has come to involve risks other than those related to tax payments,

The risks associated with transfer pricing are also not necessarily limited to multinational enterprises, and may be relevant to those businesses with little or no international activity, Taxpayers may use transfer pricing analysis to defend (or identify and correct) business dealings that create the appearance of tax arbitrage, distorted competitive market outcome or misallocated resources.

Ultimately no structure is immune from the application of Internal Revenue Code Sec. 482, and such concerns may extend beyond C corporations to S corporations, LLCs, LLPs, employee stock...