Transfer Pricing Resource Archives | Page 9 of 14

Preparing for a Tsunami of International Tax Disputes

by McDermott Will & Emery and McDermott Will & Emery | Mar 14, 2016 | Alternative Dispute Resolution, IRS Audits, Transfer Pricing Resource, Uncategorized

Recently, we published a Special Report in Tax Notes International, “Preparing for a Tsunami of International Tax Disputes.” The article can be accessed here. While there is near-universal agreement that the number of tax disputes is going to increase, existing international tax dispute resolution processes remain in serious need of improvement. A global consensus must be reached on a process for resolving worldwide tax disputes that appeals to all stakeholders. This article focuses on recent attempts by the Organisation for Economic Development (OECD), United Nations (UN) and international tax community to achieve such a consensus.

In short, the predictability of tax base results is a serious concern for countries and multi-national enterprises alike. The only realistic solution is to design a dependable and independent treaty-based dispute resolution process that accommodates the needs of all stakeholders. A foundation for this process has been provided by the inclusion of arbitration in both the OECD and UN model income tax treaties and its successful implementation in a few countries. Arbitration and alternative dispute resolution (ADR) have already evolved successfully in nontax government and commercial contexts. As with any such evolution, there have been both positive and negative experiences for countries and private parties. In the realm of international taxation, the development of these processes is in the early stages. It is important for all stakeholders in the tax arena to explore ways of using experiences from non-tax contexts to develop processes that can relieve emerging pressures relating to international taxation. To distinguish the international tax context from others, the new dispute resolution process could be referred to as the International Taxation Dispute Resolution Process (ITDRP), as suggested in the UN Secretariat Paper on Alternative Dispute Resolution in Taxation released on October 8, 2015.

While the development of a successful ITDRP will inevitably take time and will no doubt be contentious, significant advancements have been made in the past few months that suggest it could soon be on the horizon. These include the initial Base Erosion and Profit Shifting (BEPS) paper on dispute resolution, the January 2015 Dispute Resolution Conference in Vienna, the OECD Action 14 Final Report (released in October 2015) and the UN Secretariat ADR Paper.

Almost all stakeholders in the international taxation community agree that: (i) the number of disputes will increase; (ii) existing dispute resolution processes are in serious need of improvement; and (iii) a global consensus must be achieved so that global tax disputes can be resolved in a way that serves the interests of all stakeholders. In this regard, it may be fortunate for the tax community that it is arriving late to the ADR processes that have evolved in other areas over the past century. As the OECD and UN processes continue to evolve, it is hoped that lessons from these other areas can be drawn upon to develop an ITDRP that serves the interests of all parties.

Introducing McDermott’s Blog Series on LB&I’s International Practice Units

by Kevin Spencer | Mar 9, 2016 | IRS Guidance, Transfer Pricing Resource, Uncategorized

As part of an overall strategy and reorganization to utilize resources more efficiently, the Internal Revenue Service’s (IRS’s) Large Business and International (LB&I) Division has developed a series of International Practice Units. These Practice Units typically consist of a set of slides explaining how agents in the field should approach a particular issue of interest in international tax or transfer pricing. A complete list of these Practice Units can be found here.

The IRS intends the Practice Units to serve as “job aids and training materials” and as “a means for collaborating and sharing knowledge among IRS employees.” The first group was published at the end of 2014, and the IRS has steadily released new Practice Units ever since. Presently, the IRS has published over 100 practice units on a wide range of international topics.

Practice Units provide general explanations of international tax concepts, as well as information about specific types of transactions. Practice Units are not official pronouncements of law, and cannot be used, cited or relied upon for support. Nonetheless, they provide taxpayers with a window into the IRS’s current thinking about these issues. Moreover, Practice Units may be helpful to anticipate the IRS’s approach relating to specific international issues. Over the next few months, Tax Controversy 360 will unveil a series of posts highlighting individual Practice Units of special interest—please stay tuned!

LB&I Practice Units: Know Your EOI Programs

by McDermott Will & Emery | Feb 10, 2016 | Court Procedure Matters, IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On January 20, 2016, the Large Business and International (LB&I) Division released a Practice Unit entitled Overview of Exchange Information Programs and Types of EOI Exchanges, defining and describing the Internal Revenue Service (IRS) Exchange of Information (EOI) programs. These EOI Practice Units specify what types of exchanges are covered by EOI programs and what types of information the IRS can seek through each type of EOI exchange.

The IRS breaks down the avenues for international information exchange into several categories:

Specific Requests involve requests for information pertaining to a specific taxpayer under examination or investigation for a specific period.
Spontaneous Exchanges involve the transmission of taxpayer information by one member of an EOI agreement that is deemed potentially of interest to a foreign partner even though no specific requests have been initiated by the foreign partner.
Automatic Exchanges involve the transmission of taxpayer information that foreign partners have agreed to exchange on a regular and systematic basis without individualized specific requests. The most common example includes information relating to dividends, interest, rents, royalties, salaries and annuities earned in one partner country by residents of the other partner country.
Industry-Wide Exchanges involve the sharing of trends, policies and operating practices in a particular industry or economic sector and do not implicate specific taxpayer information.
The Simultaneous Examination Program coordinates strategies and the development of technical issues between the United States and a foreign partner if it is determined a common interest exists between the respective taxing authorities. These discussions are intended to facilitate the exchange of relevant taxpayer information with the foreign partner in furtherance of the separate independent examinations of a taxpayer by each jurisdiction.
Joint Audits take place when the United States and one or more of its foreign partners collaborate to conduct a single examination of a taxpayer or a related taxpayer within their jurisdictions.
The Simultaneous Criminal Investigation Program operates through the EOI provisions of bilateral tax agreements and fosters the coordination of separate criminal investigations conducted concurrently by the United States and the foreign partner.
The Mutual Legal Assistance Program relates to an agreement that authorizes a partner country to secure evidence for use by the requesting country in criminal judicial proceedings of the taxpayer.
The Mutual Collection Assistance Request Program is intended to utilize the collection assistance provisions of tax treaties, enabling one partner state to collect taxes covered by the treaty on behalf of the other contracting state. These collection provisions appear in a limited number of current United States treaties.

The Practice Units provide a short general overview of each method and—of particular usefulness—describe what government office or department is responsible for executing requests in each category. Thus, the Practice Units may be a good “first line of defense” for information-gathering when you believe the IRS is pursuing or has received an international EOI request related to your client.

In future posts, we will discuss how these tools are utilized in practice, [...]

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