Update from the MTC's Winter Committee Meetings: Transfer Pricing and Financial Institution Apportionment


During the Multistate Tax Commission’s (MTC ) Winter Committee Meetings in St. Louis on March 5, 2013, the Income and Franchise Tax Uniformity Subcommittee (I/F Subcommittee) declined to move forward with a project that would address the ability of states to invoke transfer pricing principles contained in IRC § 482 to “clearly reflect income” and to prevent so - called distortive transactions. No state represented on the I/F Subcommittee voted in favor of moving forward with this uniformity project, although four states abstained. Separately, the I/ F Subcommittee voted to essentially restart the Financial Institutions Working Group by instructing it to examine the inclusion of loans in the property apportionment factor.

Potential Transfer Pricing Project -

Originating last summer, and reflected in M TC staff memoranda, the rejected section 482 uniformity project would have sought to establish “a possible model that would fill that gap by providing regulatory guidance for applying one existing statutory source of state anti-abuse authority in the context of formulary apportionment.” Apparently driven by MTC staff, the background memorandum on the potential section 482 project is exceptionally – and purposefully – broad in scope. Moreover, the MTC memorandum stated that federal section 482 rules (based on separate, geographic - based accounting) should not apply to the formulary apportionment basis of dividing income among the states.

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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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