Transfer pricing analysis applied to tax and transfer pricing dispute litigation: methodology, deliverables, and case-specific considerations.
In a tax dispute the transfer pricing analysis answers the question the examination or the petition raises: whether the results of the controlled transactions are consistent with what unrelated parties would have realized in the same transactions under the same circumstances, and if not, how much income should be reallocated and between which companies. The economist rebuilds the delineation and the functional analysis from the agreements, the ledger, and the companies' conduct rather than from the group's documentation alone, evaluates the methods under the best method rule, assembles and screens the comparables, computes the range, and states the adjustment or its absence by year. The report is written for the forum: as direct testimony in the Tax Court, as a disclosed report in a refund suit, or as the economic position put to an appeals officer or a competent authority.
Economic analysis and expert testimony on whether the prices charged between companies under common control, for goods, services, the use of intangibles, and intercompany loans, meet the arm's length standard: the result unrelated parties would have reached in the same transaction under the same circumstances. The work delineates the transactions from the intercompany agreements and the companies' actual conduct, selects the most reliable method, documents the comparables and the arm's length range, and quantifies what the price moved, for tax examinations and appeals, Tax Court and refund litigation, state tax disputes, and commercial, shareholder, and divorce cases.
The analysis consists of the delineation of each controlled transaction at issue, whether a sale of goods, a service, a license of patents, trademarks, software, or know-how, or an intercompany loan or guarantee; the functional analysis of what each company did, owned, and risked; the arm's length range under the method that gives the most reliable measure; and the adjustment, or the restated profit, that follows from comparing the controlled result with that range, by year and by entity. Where a tax dispute concerns the value of property rather than a recurring price, such as intangibles transferred to a foreign affiliate or a closely held interest transferred by gift or at death, the analysis is a valuation under the standard the tax framework applies. The drivers are the intercompany agreements and their amendments, the transfer pricing policy and documentation for each year, legal-entity and segmented financial statements, the general ledger detail of the intercompany accounts and any year-end adjustments, the tax returns and information returns that report related-party transactions, and any advance pricing agreement.
We issue the final report in the form the forum requires and provide deposition and trial testimony, critique of the opposing transfer pricing analysis, and updated calculations as the record develops.
Each state page adds the courts, the expert standard, and the tax and legal framework the report is built around in that venue.
It starts by reading it, because the documentation shows the method the group applied and what it told the tax authority, but it does not adopt its conclusions. The economist tests the delineation against the agreements and the conduct, rebuilds the comparable set with stated screens, and shows where the documentation holds up and where an examiner or an opposing expert is likely to press.
Yes. An economic review during the examination or at the IRS Independent Office of Appeals can show whether the issue turns on the method, the comparables, or the facts, and puts the position in a form an appeals officer or a competent authority can weigh. The same analysis carries into a petition or a refund suit if the issue is not resolved.
Request a consultation on Transfer Pricing or call (201) 343-0700. Plaintiff and defense counsel.