Source: http://blog.tax-fraud.net/?cat=17
Timestamp: 2013-05-24 20:04:48
Document Index: 162461935

Matched Legal Cases: ['§482', '§482', '§482', '§482', '§6662', '§482', '§6662']

This morning, the Senate released a scathing report regarding Apple’s offshore tax practices. Among the allegations is that the company, through a complex transfer pricing scheme, kept a disproportionate amount of profits with its Irish subsidiaries, allowing the company to avoid sizeable U.S. tax obligations. According to the report, from 2009 to 2012, Apple allocated $4 billion in R&D costs to its U.S. unit, which had $38.7 billion in profits, while its Irish subsidiary had $4.9 billion in R&D costs—and $74 billion in profits.
Similar allegations have recently been levied against other large, multinational corporations, such as Amazon, Google, and Starbucks. In fact, the IRS has long been concerned that foreign-controlled US corporations are potentially “stripping away” profits from the United States through non-arm’s length pricing and potentially “abusive” financing structures. Consequently, the IRS has designated transfer pricing as a key focus of its international compliance initiatives. In the past year, the IRS has significantly ramped up its emphasis on transfer pricing enforcement, as it has put together an elite group of transfer pricing specialists to crack down on the unlawful practice.
Transfer pricing is a complex method often used by multinational corporations to lower their tax burdens in the United States. In a typical scenario, a parent company may set up a number of subsidiary companies all over the world and move goods, services, and assets from one to another. Under Internal Revenue Code (“IRC”) §482, the appropriate transfer price between related parties is that which would have been bargained for and agreed upon but for the fact that the related parties had not been related, also known as an arm’s length transaction. When choosing a transfer pricing method, a company must select the “best method,” defined as the “one that provides the most reliable measure of an arm’s length result.” IRC §482.
In an unlawful transfer pricing scheme, however, arm’s length transactions are missing. Instead, transactions are structured in order to shift profits from high tax countries, like the United States, to low tax countries, like Ireland, to lower their U.S. tax burden.
Pursuant to IRC 6662(e) and 6662(h), for those who violate the rules set forth in §482, there are two types of penalty thresholds which need to be considered; the valuational (transactional) threshold and the net §482 adjustment threshold. Under §6662(e), if the valuation of any transfer price is 200% greater or 50% or less of an arm’s-length transfer price or if the net §482 adjustment for the particular taxable year exceeds the lesser of $5 million or 10% of the taxpayer’s gross receipts, then the penalty for exceeding the particular threshold is 20%. Conversely, under §6662(h), if the valuation of any transfer price is 400% greater or 25% or less of an arm’s-length transfer price or if the net 482 adjustment for the particular taxable year exceeds the lesser of $20 million or 20% of the taxpayer’s gross receipts, then the penalty for exceeding the particular threshold is 40%. Additionally, in cases where no transfer price was charged and/or no transfer pricing report was prepared, then the 40% penalty will generally always apply.
If you have knowledge of an unlawful transfer pricing scheme, or any other form of Tax Fraud, and would like to discuss the possibility of a whistleblower award under the IRS Whistleblower Program, please contact our whistleblower attorneys today. Kenney & McCafferty will consult with you about your case, without obligation. All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.
Tags: 482, Arm's length, Transfer pricing Posted in Abusive Tax Shelters, Corporate Tax Fraud, IRS Whistleblower Office, Tax Fraud | Comments Off