Transfer Pricing Risk: Why Global Tax Strategy Now Requires Compliance

David Brandon
Attorney, Tax

Abstract

Global tax planning has changed significantly over the past two decades, as governments have moved from tolerating aggressive profit-shifting strategies to prioritizing information sharing, audits, and enforcement. David Brandon, a tax partner in the Boise office, explains how transfer pricing has become a major focus for tax authorities, including the Internal Revenue Service.

The discussion highlights the shift from tax minimization through complex intercompany arrangements toward a more protective, risk-management approach. For businesses operating across borders, the key takeaway is that compliance, fairness, and documentation now matter as much as structure. Companies need to show not only what they are doing, but why their intercompany pricing and global tax positions are defensible.

Transcript

I am David Brandon. I'm a tax partner in our Boise office, and my practice is focused on tax planning, so I'm usually involved with planning the consequences of significant transactions for businesses. In the last 20 years, there's been a real shift in global attitudes towards tax. It was the case that during the nineties and early two thousands, companies were very aggressive in shifting their activities into other countries, especially low or no tax jurisdictions, and they would have agreements with their affiliates in those countries that priced their services, their goods, their loans in ways that were outside of market. And they would do that so they could artificially shift their profit into a low or no tax jurisdiction. This concept is usually called transfer pricing. It's the government, in our case, the Internal Revenue Service, their authority to look at these intercompany transactions and reprice them to be in line with market conditions to avoid shifting of income between jurisdictions.

Over the last 20 years, we've gone really from an aggressive tax preservation to a much more protective risk management approach, and that's almost entirely because the attitude of governments around the world has been to go very hard into information sharing, go very hard into audits, go very hard into enforcement. And what's been very notable in the U.S. especially, is that in the last five years or so, there's been a string of cases where the Internal Revenue Service has succeeded in litigating very complicated transfer pricing cases. So, we have an interesting scenario right now where we have a collision of a very sophisticated global workforce, global economic community, that understands there are a lot of different taxing jurisdictions with different rules. Where there are differences, there's the ability for arbitrage. We also have a very, very sophisticated set of governments out there who understand this and are playing whack-a-mole with all of the bad guys as they're popping up.

They're driving it to a place where the main focus for our clients is not, how do I create a web of entities and transactions that are going to weasel my way into a lower tax bill, and really changing the focus to, how can we operate our business in a way that is compliant, that is fair, that operates within what the expectations are of our markets? And then the next focus is how are we documenting that so we can show to the United States, to any other country, this is what we've been doing and why this is acceptable. I think that it's a place where we hear about it a lot because it's in the news, because it's a focus of the government, and that is as it should be. I think we should continue to, as a global community, continue to figure out ways of improving the enforcement of our tax rules, but also making them fair across the entire globe.