Businesses that are struggling with transfer pricing issues are hoping that a new tool from the IRS will lead to a streamlined tax audit process, according to a new survey from KPMG LLP.
The online survey of 680 senior U.S. tax professionals found that 40 percent of respondents felt they would experience a smoother audit process due to the IRS’s new Transfer Pricing Audit Roadmap, which was designed to provide practitioners with audit techniques and tools to assist with the planning, execution and resolution of transfer pricing examinations.
In February, the Transfer Pricing Operations unit of the IRS’s Large Business and International division released an Transfer Pricing Audit Roadmap to the public. The Transfer Pricing Audit Roadmap is a toolkit organized around the notion of a 24-month audit time-line. The roadmap provides recommended audit procedures and links to reference material.
Twenty percent of the respondents to KPMG’s survey expect the Transfer Pricing Audit Roadmap tool to expand taxpayers’ understanding of the IRS’s transfer pricing concerns, while 15 percent anticipate it would provide them with enhanced certainty on tax audits.
[IMGCAP(1)]“Our survey indicates that taxpayers are beginning to align behind the new roadmap and feel it will ultimately make the transfer pricing audit process smoother for them,” said Sharon Katz-Pearlman, national principal-in-charge of KPMG’s Tax Dispute Resolution network in the U.S., in a statement. “We expect increased discussion and a greater focus on the roadmap in the months ahead. Clearly taxpayers should be thinking of using the roadmap to their advantage in developing a plan for managing a potential examination.”
Fifty-three percent of the survey respondents indicated that they expect to expand their preparation for transfer pricing audits with the new roadmap, including performing self-assessments, organizing the relevant documentation and files, and becoming more familiar with what is publicly available about their company’s profile via the Internet.
In addition, 43 percent of the survey respondents indicated that the roadmap addressed their main concerns about the transfer pricing audit process, which typically can include determining specific materials that need to be provided and how long the audit process will take.
However, the respondents were divided on the time and effort needed to comply with the roadmap. Twenty-four percent said they expected their next transfer pricing audit to be more time-consuming with the roadmap, while 11 percent said they felt it would be more burdensome. At the same time, 15 percent expected it to be less burdensome and another 15 percent less time-consuming.
When asked about the biggest change they anticipate as a result of the roadmap, 35 percent of respondents said they expect to have more discussions with IRS representatives on the specifics of transfer pricing arrangements.
The roadmap provides IRS examiners with a practical approach to the identification of transfer pricing issues and the development of issues that merit a full review, KPMG noted.
[IMGCAP(2)]“The IRS has indicated that the roadmap will be a work in process,’ and that they plan to update the tool based on taxpayer comments,” said Brian Trauman, the U.S. national transfer pricing leader for KPMG’s Economic and Valuation Services practice. “The taxpayer community should take advantage of this opportunity to share their perspectives and help shape the tool for their ease of use.”
The survey was conducted in late May during a KPMG TaxWatch webcast focusing on the new roadmap, part of a new KPMG webcast series on Tax Dispute Resolution Issues. Among the survey participants were tax directors, vice presidents of tax and chief tax officers.