Reuters is reporting that despite the Internal revenue Agency’s (IRS) 2012 fiscal budget cut of 2.5%, newly appointed Transfer Pricing Director, Samuel Maruca, is recruiting talent to crack down on companies that shift their profits from country to country in order to lower their tax bills.
Many international companies engage in what is commonly known as “transfer pricing”. In practice and theory, transfer pricing can be complex, because it involves the shifting of assets through multiple subsidiaries and multiple tax jurisdictions. The companies manipulate the pricing of the assets from one subsidiary to another. The ultimate aim is to shift profits from high-tax jurisdictions to low-tax jurisdictions lowering their overall tax liability.
Mr. Maruca has brought together a group of specialists ranging from the Big Four audit firms, law firms and other tax agencies. Ultimately, the IRS wants to regulate the transfer prices of assets, including intellectual property, so that prices cannot be artificially raised or lowered, but kept near market level.
Ironically, the economic crisis that has brought on the IRS’s budget crisis may help their recruiting efforts in other ways. Ex-Deputy IRS Commissioner Micael Dolan said, “The economic crisis allowed the IRS to attract talented, experienced industry professionals who might not have been available previously.”
With billions of dollars at stake, businesses will not merely roll over for the IRS.
“Anybody who thinks the IRS can ultimately enforce transfer pricing is either an eternal optimist or delusional,” said Richard Harvey, a tax professor at Villanova University, and a former senior adviser to the IRS. Mr. Harvery is not hopeful that the IRS can reign in these international conglomerates, saying that IRS changes in staff and hiring, “will help them on the margins, But they’re still fighting a very difficult battle where the deck is stacked against them.”
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