Law360 Quotes Josiah Child and Peter Barnes on International Tax Cases to Watch in 2024

The U.S. Supreme Court's upcoming decision on a constitutional challenge to a repatriation provision could reverberate beyond the tax code's measures for deferred foreign income, while Coca-Cola may make its own constitutional arguments in a long-running $3.3 billion transfer pricing dispute.

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Josiah Child of Caplin & Drysdale noted that the justices could approach the case by deciding whether the Moores' deferred foreign income is property in the form of unrealized income, and because that unrealized income would be considered property, it wouldn't be taxable under the 16th Amendment. This approach is what's most relevant to a wealth tax, he said.

Child added that alternatively, the justices could say the income was realized by the CFC and the question is whether it's properly attributable to the Moores as a due process issue.

"A very plausible outcome would be that the justices uphold the transition tax, but with a basis for decision that tends to foreclose tax on unrealized gains of a kind that is likely to be critical to the functioning of a broad-based wealth tax," he said.

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According to Peter Barnes at Caplin & Drysdale, Coca-Cola faces an uphill battle. The IRS needs the flexibility to revisit corporate taxpayers' facts under IRC Section 482, he said, referring to the statute that covers the arm's-length principle of dividing intercompany profits based on how unrelated parties would behave.

However, Barnes noted that whether Coca-Cola wins or loses on appeal, the decision is going to be important when it comes to looking at other situations where facts may have changed over time and the agency believes the taxpayer's policies are no longer appropriate. Transfer pricing approaches have to accommodate and adapt as facts change, he said.

For Barnes, the big takeaway is that "taxpayers have got to constantly be evaluating their markets, the activities of both parties to the transaction, and making sure that their transfer pricing is still appropriate and documenting that fact or tweaking their transfer pricing."

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