MTC Launches Transfer Pricing Effort

by Eversheds Sutherland (US) LLP

On June 2, the Arm’s Length Advisory Group (the Group) of the Multistate Tax Commission (MTC) met in St. Louis, Missouri, to begin the process of developing a multistate arm’s length pricing adjustment service. States participating in the meeting included Alabama, Florida, Georgia, Iowa, Kentucky, New Jersey, North Carolina and the District of Columbia. Joe Garrett (Alabama) was elected to chair the Group. The Group is primarily concerned with addressing the inability to effectively conduct transfer pricing audits at the state level. It seeks to create a viable project design sufficiently developed for an operational model by July 2015. 

The need for the Group—according to the representatives from the participating states—derives from an inability to successfully rectify corporate income tax returns that states assert are distorted. While most states participating in the Group have applied expense disallowance rules for the better part of a decade, the states still believe that many intercompany transactions not covered by expense disallowance are distortive.

One issue contributing to this problem from the state’s perspective is the lack of substantial resources to successfully enter into a dispute with a taxpayer asserting that a transfer pricing agreement accurately represents the value of an intangible asset. For example, while the taxpayer consults with economists to accurately determine the true market value of an intangible asset, states lament their inability to obtain such a costly, detailed and thorough report. Moreover, states lack the human capital necessary to conduct an extensive transfer pricing audit, thus increasing the demand for the MTC to participate in such audits. New Jersey, the District of Columbia, Alabama and Kentucky have all previously contracted with third-party consultants to assist in transfer pricing assessments or audits.

Two substantive recommendations were offered for discussion by Dan Bucks, the project facilitator. First, to compensate for the lack of state resources, the MTC could develop institutional knowledge and experts with statistical and economic expertise. This expertise would be utilized by participating states to determine the true market value of intangible assets transferred by intercompany agreements. How the economist or other expert would develop the report for the state was still to be determined. With limited public taxpayer financial information, an economist would inherently fail to make a precise calculation without all relevant financial information. Simply put, the economic expertise is useless without the economic figures needed to develop a legitimate transfer pricing report. Ultimately, the viability of an expert to assist the MTC was left unresolved.

Second, the Group discussed the possibility of creating a joint audit function to assist with corporate taxpayer compliance and expedite the development of state institutional audit knowledge. The Group cited the ability of joint audits to “accelerate the training and acquisition of expertise by the staff of individual agencies.” However, it is unclear where—if at all—joint audits in the context of transfer pricing fit in with the current joint audits under the MTC. Moreover, it is unclear how many states would be interested in the joint audit program. For example, Florida indicated that it had no desire to be a part of the joint audit program, but indicated its interest in the development of economic expertise. Surprisingly, several states participating in the Group were intrigued by the apparent success of the District of Columbia’s transfer pricing audit program. The District of Columbia program has been widely criticized for resulting in taxpayer assessments where taxpayers were never actually audited.

The next meeting will take place via teleconference on June 25. The Group will meet in person and via teleconference at the 2014 Annual MTC Conference and Committee Meetings on July 28. Members of the public are invited to join both meetings.


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.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.