Jurisdiction Under Scrutiny: 15 Things to Know About Transfer Pricing in the United States

Transfer pricing is regulated by the Internal Revenue Service (IRS), and while the United States does not adopt the OECD format, its requirements are substantially identical. Instead of a typical local and master file, the IRS adheres to the 10 principal documents, which requests the same information in a different format.
The IRS has issued regulations under IRC §482 outlining the rules and guidelines for transfer pricing documentation.
There is no threshold under IRC §482. In theory, all transactions should be supported by appropriate transfer pricing documentation.
There is no requirement for transfer pricing documentation to be submitted to the IRS, but it should be completed by the due date or extended due date of the return.
If requested by the IRS, companies have 30 days to submit the transfer pricing documentation.
While companies are not required to produce a master file, it is considered best practice to compile this information to assure themselves of consistency in their internal policies, procedures, and agreements.
Branches and PEs are also required to adhere to IRC §482, and it’s clearly necessary where the organization has “checked the box” on an entity under the §7701 regulations.
The IRS does not require transfer pricing documentation for domestic transactions, but state-to-state transfer pricing reports may be asked for by state tax authorities.
The IRS has recently been looking for more specific information on the choice of methods, and “cookie-cutter” explanations may be questioned by the auditor.
Regional comparables are generally acceptable provided the comparability requirements are satisfied.
Generally, multi-year data is used for testing the controlled transaction.
The IRS accepts the interquartile range, but the specific formula used by the IRS is different than the Excel interquartile calculation and can be slightly more beneficial to the company.
The IRS accepts reports in English.
Best practices dictate that transfer pricing documentation be prepared annually to protect the company from penalties under the code.
The IRS is known to consider activities where there is a perceived tax motive in transactions as a basis for a more extensive audit of the transaction.