Transfer pricing examines the reasonableness of prices negotiated within transactions involving related parties (e.g., intercompany transactions). Those prices would usually be audited by the LDR during the course of a regular corporate income tax audit. Due to the high level of complexity and sometimes voluminous nature of some taxpayers’ related party or intercompany transactions, transfer pricing can be an extremely costly and time-consuming aspect of conducting an income tax audit. Therefore, the LDR has initiated this program as a potential remedy. In addition to increased efficiency, the LDR’s hope is that the program will lead to a greater degree of uniformity and consistency among taxpayers for whom transfer pricing is a significant issue as it relates to currently open as well as future tax periods. Eligibility requirements for participation in the program includes an established “track record” of effective, voluntary compliance as well as the ability to devote the necessary time to participate in the program, produce suitable records for the LDR’s review, and pay an assessment – should one be issued by the LDR at the conclusion of its review. If approved to participate in the program, corporate taxpayers will have to provide the LDR information such as its federal tax returns, a listing of its intercompany transactions, an organizational chart, and its transfer pricing studies as well as any IRS agreements relating to transfer pricing. Benefits of participating in the state’s new program include a waiver of the penalties associated with an assessment for unpaid income tax resulting from the LDR’s review of the data provided in conjunction with participation in the program. Additionally, the LDR will abate any interest which accrues during the time period in which the managed audit review itself occurs. Also, taxpayers participating in managed audit programs generally experience less of a disruption in their day-to-day business operations than taxpayers undergoing a traditional audit of their financial records.
Although certain exceptions may apply, taxpayers currently under audit are also eligible to apply for approval to participate in the program. However, the conclusions reached by the LDR and any benefits resulting from participation in the program are strictly limited to the issue of transfer pricing. All other audit issues must still be resolved through the regular audit process.
Per Louisiana Revenue Information Bulletin No. 21-029, interested taxpayers must apply to the Louisiana Transfer Pricing Managed Audit Program no later than April 30, 2022, and all managed audits entered into pursuant to the program must be finalized by June 30, 2022. Advantous is working with its clients in an effort to identify and consider the relevant benefits and risks associated with this new program. We are currently in the process of finalizing an agreement with the LDR on behalf of a client and our experienced tax professionals are ready and available to answer any questions you may have if you believe your company can benefit from this program as well.