On Oct. 26, 2021, the Louisiana Department of Revenue announced a new voluntary transfer pricing initiative that will allow taxpayers to enter into managed audits to address intercompany transfer pricing issues. The program begins Nov. 1, 2021 and applications will be accepted until April 30, 2022. The new program allows taxpayers to conduct self-audits in collaboration with department personnel.
Under the program, taxpayers and the department can resolve outstanding transfer pricing issues and agree to resolve issues for up to four tax periods. In addition, the department will waive penalties and abate interest accrued during the managed audit. According to the department, the initiative aims to create an efficient and expedited resolution for corporate tax audits when transfer pricing issues exist, and provide certainty and uniformity to taxpayers on the resolution of transfer pricing issues for open audit periods and a defined period of future tax years. Moreover, the department hopes that taxpayers will gain an understanding of how Louisiana tax law is applied to transfer pricing, ultimately providing less disruption to business operations.
To be eligible to apply to the program, taxpayers must have a history of voluntary compliance with Louisiana law, certify that they have the time and resources to participate, have suitable records of intercompany transactions and have the ability to pay any expected liabilities. If accepted, the department will assign an auditor to work with the taxpayer. The taxpayer will be expected to provide the department with certain information including completed federal tax returns, lists of intercompany transactions, transfer pricing studies, organization charts and financial statements.
Transfer pricing audits and controversy are expensive and time consuming. Businesses spend an inordinate number of resources dealing with state transfer pricing issues. Planning and understanding how states approach transfer pricing audits is critical because audits are ramping up. With this initiative, Louisiana joins North Carolina and Indiana in attempting to mitigate some of the costs associated with transfer pricing audits. Businesses operating in Louisiana and engaging in any intercompany transactions should be aware of the Louisiana initiative. Taxpayers with questions about entering the program or on addressing state transfer pricing concerns should reach out to a state and local tax adviser.