On 14 April 2020, the United States (US) Internal Revenue Service (IRS) has posted on its website new frequently asked questions (FAQs) outlining best practices and common error in preparing transfer pricing documentation.
The IRS states that the suggestions and recommendations are consistent with the requirements in the regulations to provide adequate and reasonable support for the arm’s length nature of intercompany pricing. Many taxpayers would benefit from insights in the FAQs that could be provided to the IRS to increase the chance of audit deselection or more efficient audits. The IRS believes the potential for deselection of issues earlier in the examination process could be a powerful incentive for many taxpayers to improve their transfer pricing documentation. The FAQs and responses are illustrative and are being shared in the spirit of transparency to encourage cooperative compliance by taxpayers. The responses, and examples therein, are high-level only and should not be relied on to analyze actual transactions.
