Baxter International Braces for IRS Transfer Pricing Adjustment
1. Issue & What Was at Issue
Issue:
Baxter International is facing a potential transfer pricing adjustment from the IRS.
What is at issue:
The IRS is examining Baxter’s intercompany pricing for transactions with its manufacturing entities in Costa Rica and Puerto Rico for the 2019–2020 tax years. The focus is on whether the transfer pricing used between the U.S. parent and these offshore manufacturers accurately reflects arm’s-length pricing.
2. Present Result / Current Outcome
- Baxter has not yet received a formal Notice of Proposed Adjustment from the IRS.
- Despite this, the company is:
- Recording reserves for uncertain tax positions covering 2019–2025 totalling approximately $300 million, excluding penalties and interest.
- The IRS examination is ongoing, and Baxter is actively responding to inquiries.
- Baxter states it believes its positions are properly supported but acknowledges that any IRS adjustment could have a material impact on its financials.
3. To-Dos / Expectations / Next Steps
- For Baxter:
- Continue responding to IRS inquiries and participating in ongoing discussions.
- Maintain reserves and update them as needed depending on the audit’s progression.
- Prepare for potential financial impact if an adjustment is asserted.
- From the article’s implications:
- Taxpayers with similar manufacturing structures may expect continued IRS scrutiny of cross-border transfer pricing.
- Possible future actions could include negotiation, appeals, or litigation depending on the IRS’s eventual position.
