Legal Alert: MTC Explores Transfer Pricing Audits, Shelves Pass-Through Entity Project

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On Thursday, May 9, the Multistate Tax Commission (MTC) hosted an Executive Committee (Committee) meeting in Washington, D.C. The Committee discussed many items ranging from election of new officers to Committee updates to the status of federal legislation affecting state taxation. The two most important and interesting topics related to the consideration of transfer pricing audits and to the shelving of the MTC’s “pass-through” project.

Transfer Pricing Audits -

The most surprising issue debated by the Committee was the possibility of building an infrastructure to facilitate Internal Revenue Code §482-style (transfer pricing) audits. A number of states have experimented with using third-party transfer pricing auditors in recent years, but no state has amassed internal staff with significant transfer pricing audit experience. A representative from the New Jersey Division of Taxation advocated for the use of transfer pricing techniques for use in the MTC’s Audit Program. Some intercompany transactions are outside of the scope of New Jersey’s addback statute, and New Jersey volunteered that it lacks the internal expertise needed to conduct extensive transfer pricing audits.

Please see full alert below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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