Contemporaneous Documentation

Why every Multinational Corporation should obtain Contemporaneous Documentation for FY2014

Contemporaneous documentation refers to a transfer pricing report that a taxpayer obtains before the taxpayer’s federal tax return is filed. While a transfer pricing report is not required, the IRS policy requires that in any examination of a U.S. taxpayer that is a member of a multinational group, the IRS agent must request a copy of the taxpayer's contemporaneous documentation. If a taxpayer obtains adequate documentation that (1) provides a reasonable basis of support for the taxpayer’s transfer pricing and (2) is completed before the tax return is filed, the taxpayer eliminates the risk of an IRS transfer pricing penalty that can add an additional 20 percent to 40 percent if the taxpayer provides this documentation to the IRS within 30 days of an IRS request.

Without such documentation, the IRS can impose a penalty in cases where a large transfer pricing adjustment is made to the taxpayer’s intercompany prices. A Multinational Corporation's (MNC) obligation under the law is to make a reasonable, good faith effort in producing contemporaneous documentation for penalty protection. It is important that the MNC (1) provides accurate information in response to all information requests and (2) reviews the statement of facts when receiving the draft report to make sure information provided on their business is accurate. This final step will help ensure the MNC has penalty protection if the company is subject to an IRS examination.

While penalty protection is an important benefit of the study, the greater value of such a study is that it is the most effective tool to manage an IRS examination of transfer prices and the report represents a good faith effort by the MNC to ensure its transfer pricing is conducted on an arm’s-length basis. Altus' objective is to defend the results reflected on the 2014 tax return and to prevent any IRS transfer pricing adjustment and not just prevent imposition of a transfer pricing penalty. Click here to contact our Transfer Pricing team and learn more about 6662 Contemporaneous Documentation.