The U.S. Internal Revenue Service (IRS) is aiming to strengthen Transfer Pricing audits associated with “captive companies “2 for this year through a more exhaustive evaluation of the documentation filed by taxpayers related to their related-party transactions.
Hiring Additional Staff
For this purpose, the IRS is hiring agents and attorneys to conduct transfer pricing audits. The objective of such audits is to ensure that the IRS is taxing the correct amount of profits in the country.
In this regard, auditors will assess whether intercompany transactions are conducted under the Arm’s Length Principle. Although “captive companies” domiciled abroad may now commonly choose to declare U.S. taxes, it is still important to obtain proper Transfer Pricing documentation to demonstrate that the transfer of risk occurred and the “captive company” is considered an insurance company for U.S. tax purposes.
Now, Transfer Pricing assists in supporting accelerated tax deductions in the first year as an insurance company or when a new product is added to the “captive company.”
Context in the Country
Within the state context, there are states, such as California, deciding for an active audit against “captive companies” to actually ensure they can collect the correct amount of taxes.
Source: Captive Intelligence 28/02/23