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IRS Upping Focus on Economic Substance in Transfer Pricing Audits

Nov. 15, 2022, 9:26 PM

The IRS is thinking about raising the issue of economic substance more often in transfer pricing audits, an agency official said Tuesday.

“Even in cases where there are taxpayers who do have transfer pricing documentation, we are thinking about economic substance, sham transactions, and also assertion of penalties,” Holly Paz, acting commissioner of the agency’s Large Business and International division, said at a conference hosted by the American Bar Association Tax Section in Philadelphia.

The IRS defines a transaction as having economic substance if it meaningfully changes a taxpayer’s economic position, and ...