Scalar Conclusion: Recent Transfer Pricing Controversy Disputes , Decisions, and Agreements
Global Transfer Pricing Enforcement: Multinationals Face Heightened Scrutiny
Across the globe, tax authorities are stepping up enforcement of transfer pricing and cross-border transactions, targeting royalties, cost-sharing arrangements, and intercompany pricing. US multinationals face billions in potential liabilities, while European and Asia-Pacific authorities are recovering record amounts and pushing companies toward advance pricing agreements and treaty-based dispute resolution.
US Transfer Pricing Enforcement: Big Multinationals Under IRS Scrutiny
Key Issues
US multinationals are engaged in high-stakes IRS disputes involving billions in potential taxes and interest:
- Coca-Cola: Challenging $18B in royalty reallocation using 3M precedent and Loper Bright.
- Medtronic: Petitioning the Eighth Circuit to use CUT method vs IRS’s CPM for Puerto Rico IP transfers.
- Microsemi: Settled platform contribution case; guidance on cost-sharing acquisitions remains unresolved.
- Bristol-Myers Squibb: Set aside $160M reserves for 2008–2012 transfer pricing adjustments.
Current Outcome
- Appeals and settlements provide partial precedent, but results are highly fact specific.
- Open questions remain on acquisition price adjustments and cost-sharing arrangements.
- Companies are reserving substantial funds to cover potential IRS assessments.
Next Steps
Plan financially for potential exposures and penalties.
Track appellate rulings and evolving interpretations of §482.
Maintain robust, contemporaneous documentation.
International Transfer Pricing Enforcement: France, UK, Australia
France
- €5.2B recovered in 2024 (+23%), with transfer pricing audits contributing €3.3B.
- VAT and wealth tax collections also rose, aided by data sharing and platform enforcement.
- Expect ongoing scrutiny of intercompany pricing and compliance.
UK
- Salesforce UK paid £31.8M in back taxes under a bilateral APA (FY20–FY24).
- APAs provide clarity on profit allocation and reduce dispute risk.
- Other multinationals should consider pre-approving transfer pricing policies.
Australia
- Oracle Australia paused ATO proceedings over embedded royalties, pursuing a MAP with Ireland instead.
- Reinforces that MAPs are effective for cross-border disputes but offer limited precedent.
- The PepsiCo win confirms judicial support for treaty-based dispute resolution over domestic litigation.
Next Steps for International Firms
Maintain comprehensive documentation for audits and negotiations.
Prepare for aggressive French audits.
Leverage APAs in the UK to mitigate retrospective adjustments.
Use MAPs and treaty mechanisms in Australia for royalty disputes.
