Transfer pricing issues may create consequences beyond the Section 6662 transfer pricing penalty. Certain multinational groups may also have additional international reporting requirements, including Country-by-Country (CbC) reporting.
CbC reporting is designed to give tax authorities a clearer picture of where a multinational group earns income, pays taxes, and conducts business. In the United States, a U.S.-headed multinational enterprise group generally should file Form 8975, Country-by-Country Report, when its annual consolidated group revenue meets the applicable $850 million threshold. The report generally includes information on revenue, income, taxes paid, employees, and assets in each country.
CbC reporting helps tax authorities identify potential profit-shifting and transfer pricing risks and determine whether further examination may be necessary. Other international information returns may also apply depending on the company’s ownership structure and cross-border transactions.
Therefore, a transfer pricing issue may potentially result in:
Transfer pricing compliance therefore involves more than simply setting an appropriate price. Companies should also maintain proper documentation and comply with applicable international reporting requirements.
Next, let’s understand how a company can reduce the possibility of a transfer pricing audit risk, including foreign companies in the United States.