Trial testimony in a tax or transfer pricing dispute presents an economic analysis to a judge in the Tax Court, or to a judge or jury in a refund suit or a commercial case. The economist explains the transactions and the companies' roles first, then the method and why it is the most reliable, then the comparables and the range, and finally where the controlled result falls and what adjustment, if any, follows. Demonstratives should show the functional analysis, the screening of the comparables, and the range with the controlled result marked, and a reconciliation of the two experts' results should show how much of the gap each disputed choice explains.
Checklist
Prepare a board of the transactions and each company's functions, assets, and risks
Prepare a board of the comparables search: the screens, the accepted and rejected companies, and the range
Prepare the reconciliation of the two experts' results, choice by choice
Prepare the result under the opposing method and tested party
Confirm every board figure ties to a report schedule and a source document
Questions to ask the economist
How will you explain the arm's length standard to a fact finder who has not seen a transfer pricing case?
How will you show why your tested party is the right one?
What does the result look like under the opposing comparable set?
How will you explain the point in the range the result is measured to?
Timeline
One to two preparation sessions in the week before testimony, after the demonstratives are drafted and the opposing report has been analyzed.
Required documents
The final report with the range, the adjustment, and the sensitivity schedules
The agreements, the documentation, and the financial statements relied on
Draft demonstratives
The opposing expert's report and any deposition transcript
Common pitfalls
Presenting the comparables as a list of names rather than as the result of stated screens
Leaving the fact finder without the result under the other side's choices, so the gap between the experts cannot be broken down
Explaining the method in the vocabulary of the regulations rather than in terms of what each company did
How does the economist explain the arm's length range to a judge?
As the spread of results that comparable independent companies earned in similar circumstances, narrowed to the middle of the distribution where the comparables are inexact, with the controlled company's result marked on it. The board shows each comparable, the screen that admitted it, and the range, so the court can see whether the result falls inside it and, if not, how far outside it falls.
What if the court accepts neither expert's analysis in full?
The report's sensitivity tables let the court adopt one expert's method with the other's comparables, or exclude a disputed company, and read the result directly. The economist should say on direct that the analysis is built in steps that can be accepted or rejected one at a time, because it tells the court the result is not all or nothing.
How is a transfer pricing analysis presented to a jury in a commercial case?
With the transactions and the price first, in terms of what each company did and what an independent company would have paid, and the method second. The jury sees the price charged, the arm's length price, the difference applied to the volumes in the record, and the resulting figure by year, with the comparables shown as the evidence for the arm's length price rather than as a statistical exercise.
References
Tax Ct. R. Prac. & Proc. 143(g) (expert witness reports). ustaxcourt.gov
Treas. Reg. sec. 1.482-1 (allocation of income and deductions among taxpayers). ecfr.gov
OECD. (2022). OECD transfer pricing guidelines for multinational enterprises and tax administrations 2022. OECD Publishing. doi.org