Transfer Pricing Expert Witness

Whether the prices charged between related companies match what unrelated parties would have agreed to in the same transactions under the same circumstances. The expert delineates the transactions from the intercompany agreements, the invoices, and the ledger, establishes which company performed which functions, owned which assets, and bore which risks, selects the method that gives the most reliable measure, and compares the result with comparable transactions or companies to determine the arm's length range and any adjustment.

The intercompany agreements and their amendments, the transfer pricing policy and the documentation for each year at issue, legal-entity and segmented financial statements, general ledger detail of the intercompany accounts and any year-end adjustments, the tax returns and information returns that report related-party transactions, any advance pricing agreement, and the organization charts and operating records the functional analysis rests on. Interviews with the people who ran each function fill in what the documents leave out.

The economics is the same: the delineation, the functional analysis, the method, the comparables, and the range. What differs is the rule of decision. In a tax forum the arm's length standard governs the result; in a commercial, shareholder, or divorce case the contract, the fiduciary duty, or the support statute governs, and the arm's length result is evidence of what an unrelated party would have paid. The report states which question it answers and presents the result in the form the forum uses.

In writing first. The court requires each expert to prepare a report that states every opinion with its basis and reasons, the facts and data considered, the exhibits, the expert's qualifications, prior testimony, and compensation, and the report is received in evidence as the expert's direct testimony. Cross-examination then tests it, so the report is written to stand on its own, with every choice stated and every figure traceable to the record.

By showing the result under the other side's method, tested party, comparable set, and adjustments as well as under its own, and by explaining which of those choices it accepts and why the others do not hold. A tribunal deciding between two transfer pricing analyses can then see which choices drive the difference and attach its finding to the record rather than to an expert's conclusion.

As early as the record allows. During an examination, a review before a notice of proposed adjustment can show whether the issue turns on the method, the comparables, or the facts; at the appeals stage it puts the economic position in a form an appeals officer can weigh; and in litigation it leaves time to rebuild the delineation and the comparables before the disclosure deadline rather than defending the documentation as written.