Peter Barnes and David Rosenbloom Comment on IRS Transfer Pricing Tool

While companies may have less incentive to move intangibles offshore after the U.S. tax overhaul, a change to the transfer pricing statute that has received little attention gives the IRS a powerful weapon against those that still choose to adopt that tax planning technique.

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"Old habits die hard," said David Rosenbloom of Caplin & Drysdale. "My sense is that without a change to 482, we would still see 482 planning."

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GILTI is something of a crude tool compared with Section 482, according to Peter Barnes, a professor of tax law at Duke University School of Law and of counsel at Caplin & Drysdale. The GILTI calculation, he noted, aggregates income across all foreign subsidiaries, allowing earnings in high-tax countries to be offset against those in low-tax jurisdictions.

"If you have businesses in higher-tax jurisdictions, you may have the ability to absorb more low-taxed income in other jurisdictions without triggering GILTI," he said. In those cases, he added, GILTI doesn't apply, "so transfer pricing is the tool the IRS wants to use."

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Excerpt taken from the article “IRS Wields Powerful Transfer Pricing Tool After Tax Overhaul” by Molly Moses for Law360 Tax Authority.