USA Law and Practice Contributed by: Kim Marie Boylan, Nicholas Wilkins, Christina Culver and Kiara Williams, White & Case LLP
13. Controversy Process 13.1 Options and Requirements in Transfer Pricing Controversies The transfer pricing controversy process includes the availability both of administrative appeal proceedings and judicial review. Transfer pricing controversies are not treated differently from other tax controversies. Within the IRS there is an Independent Office of Appeals, which is empowered to settle tax controversy cases at the administrative level, including based on the hazards of litigation. In addition to the standard appeals process, other ADR options within the IRS may be available. If the taxpayer is unable to resolve the contro - versy at the administrative level, there are three options for judicial review: • the US Tax Court, where the taxpayer can challenge a disputed tax before paying; • the US Court of Federal Claims, where the taxpayer must pay the tax before seeking a refund; and • the US District Court for the district where the taxpayer resides, which also requires pay - ment first. Either the taxpayer or the government may appeal a trial court decision as of right to a fed - eral circuit court panel. Further appeals to an en banc circuit court or the US Supreme Court are discretionary for the courts.
es. Although some compensating adjustments are allowed, Section 1059A of the Code and Treasury Regulation Section 1.1059A-1 prohibit taxpayers from making upward adjustments to the transfer price after the customs entry has liquidated. Notably, Section 1059A of the Code does not limit the IRS’s authority under Section 482 of the Code and the IRS can determine that the transfer price is lower than the customs valu - ation if the customs valuation exceeds the arm’s length price. Section 1059A of the Code does not apply to any portion of the value of an imported good that is not subject to customs duties on an ad valorem basis or has a duty rate of zero. Factors not included in customs valuations include: • freight charges; • insurance charges; • amounts incurred for the construction, erection, assembly, or technical assistance provided with regard to the property after importation into the USA; and • any other amounts not taken into account in determining the customs value, not properly includible in customs value, and which are appropriately included in the cost basis or inventory cost for income tax purposes. All such amounts must independently satisfy the arm’s length standard if they are paid to related parties. These exceptions allow the Section 482 transfer pricing value to exceed the customs value in certain circumstances.
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