Michael C. Durst (Steptoe & Johnson, Washington, D.C.) has published Congress: Fix Transfer Pricing and Protect U.S. Competitiveness, 128 Tax Notes 401 (July 26, 2010). Here is the abstract:

The House Ways and Means Committee conducted a hearing on July 22 to explore issues arising under current U.S. transfer pricing rules. Acting Ways and Means Chair Sander M. Levin, D-Mich., had said that the hearing was intended to help create a ‘‘tax code that enhances the competitiveness of our companies and is enforceable by the IRS.’’

This article suggests a way in which Congress might build on the hearing and accomplish the two important goals that Levin points to. The article argues that important elements of today’s transfer pricing rules have caused the rules to be unenforceable and that enforceability will require significant changes to current law. It also argues that enacting enforceable transfer pricing rules, without other compensating changes to the tax code, would result in a de facto corporate tax increase that could harm U.S. competitiveness. The only workable solution is for Congress to revise current transfer pricing rules in the course of comprehensive tax reform, so that the resulting effective tax rates on U.S. businesses can be controlled. This solution will require political compromise — recently a scarce commodity — but a balanced approach is necessary if the United States is to have international tax rules that are both competitive and enforceable.

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