Louisiana Commences Transfer Pricing Managed Audit Program
On October 26, 2021, the Louisiana Department of Revenue (LDR) invited eligible taxpayers to participate in a voluntary initiative, the Louisiana Transfer Pricing Managed Audit Program, which aims to resolve transfer pricing disputes. The program opened to taxpayers on November 1, and all audits must be resolved through the program by June 30, 2022. The LDR must receive a taxpayer’s request for approval to participate in the Transfer Pricing Managed Audit Program by April 30, 2022. The goal of the program is to create an efficient and expedited means to resolve transfer pricing audits and provide certainty and uniformity to taxpayers on the resolution of transfer pricing issues for open tax years and up to four future tax periods. The main benefits of participating in the program are that any penalties and interest related to a transfer pricing adjustment would not be imposed and the transfer pricing dispute will be resolved in an expedited manner.
Here are the main eligibility requirements for taxpayers:
- Must have a history of cooperating with the LDR
- Must certify that they will commit appropriate resources to manage the process
- Must have adequate records related to the intercompany transactions
- Must have reasonable expectation that they are willing to pay any expected liability
The program will not consider the resolution of nontransfer pricing issues. With written consent by the taxpayer, the LDR will allow the taxpayer to appoint a tax or transfer pricing advisory firm to participate in the process.
In recent years, states have heightened their interest in transfer pricing matters—both domestic and international. A number of states participate in the Multistate Tax Commission’s State Intercompany Transactions Advisory Service Committee, which seeks to develop ways for states to share information and collaborate on transfer pricing enforcement. Last year, North Carolina sponsored a voluntary resolution program, which netted the state approximately $100 million in additional tax revenues. In 2019, Indiana created an advance pricing agreement program, which allows the taxpayer and the state to agree upon transfer pricing methodologies for pricing the taxpayer’s intercompany transaction(s). States have seen a decline in corporate tax revenues at a time when they are under pressure to collect additional tax revenues to fund stimulus spending related to the COVID-19 pandemic. Therefore, multistate taxpayers in separate filing states, such as Louisiana, can expect increased scrutiny into their transfer pricing arrangements.
Multistate companies with existing or potentially contentious transfer pricing issues involving Louisiana should consult their state tax or transfer pricing advisor to determine if participating in Louisiana’s Transfer Pricing Managed Audit Program could be beneficial to them.
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