State Early Pricing Agreements and Transfer Pricing Audit Initiatives in Indiana and North Carolina Have Been Saved States that accelerate transfer pricing, as evidenced by the most recent court proceedings, are working to provide alternatives to more effective settlement of transfer pricing disputes and , in some cases, on a forward-looking basis. Such alternatives could provide welcome security for businesses facing complex transfer pricing issues. The North Carolina Revenue Department (NC DOR) also recently launched its North Carolina Business Transfer Decision Initiative to deal with open tax years because of the requirement for a tax return.2 Taxpayers who wish to participate in the initiative must apply by September 15, 2020. With respect to subjects who resolve transfer pricing issues under the initiative, NC DOR waives sanctions that would otherwise have been imposed; Conversely, if the north Carolina transfer pricing review is adjusted, there is a risk of future penalties for other taxpayers. In 1991, the IRS introduced the federal APA program to help taxpayers solve business-to-business pricing issues. After a reorganization in 2012, the federal program is now called the Advance Pricing and Mutual Agreement Program (APMA). 4 The federal APP process is considered an alternative dispute resolution procedure. Throughout the APA process, the taxpayer and the IRS team have the opportunity to participate in conference calls or face-to-face meetings to negotiate and discuss issues or concerns. The IRS will then present a document or memorandum containing its findings, and taxpayers will be welcome to comment. In a bilateral or multilateral case, the IRS will negotiate the substantive terms of the APP with the foreign tax administration. After this phase of discussion and negotiation, the taxpayer and the IRS will reach a formal and binding agreement in the form of the APP.

In most cases, the APA is prospective for at least five years and, in some cases, the APA will have a retroactive effect, including “backtracking” years. In general, unilateral AAPs take on average about 30 months to resolve, and other APAs take longer. Renewing an APA usually takes less time. The Indiana Revenue Department (IN DOR) is in the process of establishing an Advanced Price Agreements (APA Program) that is expected to provide companies with prospective security on their Indiana transfer pricing issues.1 THE IN DOR has not yet issued administrative guidelines for their APA program. While transfer pricing principles vary from member state to member state on some issues, it may be helpful, in the absence of procedure guidelines published by IN DOR, for a company considering the Indiana APA program to refer to the general parameters of the App process offered by the Internal Revenue Service (IRS), as explained below. Within 31 days of receipt of all documents from the subject, the NCB would prepare a summary report containing any proposed accommodations, including its methodology and conclusions. NC DOR and the taxpayer will then have 15 days to reach agreement on the proposal. If NC DOR reached an agreement during this period, it would waive any sanctions for all agreed issues. The APMA program aims to avoid double taxation by allowing taxpayers to enter into unilateral, bilateral or multilateral agreements with the U.S.

and international government through APP programs. While a unilateral APA involves only one subject and the IRS, a bilateral APA also involves a foreign tax administration (and, in the case of a multilateral APA, two or more foreign tax authorities). The Indiana APA program indicates that states are willing to resolve public transfer pricing issues in a forward-looking manner, and other countries may be able to follow suit.

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