Transfer Pricing and FIN 48: Removing Uncertainty through the Advanced Pricing Agreement Process

Capuzzi, Christopher | January 1, 2010

The increasing globalization of companies is indisputable, and the multinational enterprise offers many heuristic challenges. Among these are jurisdiction-specific taxation and accounting standards and principles. Enterprises often operate without regard to legal entity structures but rather along business lines. While entities may operate without regard to jurisdictional lines, local taxing and accounting regimes are steadfast on ensuring adherence to their respective principles. Chief among these is ensuring that there is a proper allocation of the tax base. The proper allocation of the tax base has long been at the forefront of concerns, so much so that normative transfer pricing principles have existed for decades. However, the “variation in tax rules across national tax jurisdictions causes different degrees of complexity and uncertainty for both the tax authority and the taxpayer regarding tax base allocation.” The purpose of this Comment is to propose a process whereby the taxpayer or financial statement preparer can minimize uncertainty in preparing its FIN 48 analysis for transfer pricing positions through the I.R.S. Advanced Pricing Agreement process. At present, divergent doctrines and standards set forth by the I.R.S. and the FASB create complexity and inefficiency for the taxpayer or financial statement preparer.