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FAQs on North Carolina’s initiative for resolving transfer pricing issues

FAQs on North Carolina’s initiative, transfer pricing

The North Carolina Department of Revenue released a set of “frequently asked questions” (FAQs) regarding an initiative to expedite the voluntary resolution of corporate intercompany pricing issues.

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The transfer pricing initiative began 1 August 2020 as a voluntary initiative, and generally concludes by 1 December 2020. Read TaxNewsFlash

Under this program, an important step is that by 15 September 2020, taxpayers must agree in writing to participate in the initiative by completing and emailing an “election to participate” form to the Department’s representative or the taxpayer’s auditor if the taxpayer is currently under audit. Taxpayers that decide to participate must provide all required transfer pricing, tax, and financial information and documentation to the Department by 16 October 2020.

FAQs

Read the FAQs [PDF 206 KB]

  • One FAQ confirms that taxpayers may not come forward and participate in the initiative anonymously, but must identify themselves to the Department of Revenue.
  • Several of the FAQs address questions regarding taxpayers that are currently under audit in North Carolina. For example, the Department confirmed that if the taxpayer is currently under audit and decides to participate, the current auditor will handle the case. Furthermore, if the taxpayer is under audit, decides to participate, and there is no resolution, the normal audit process will resume. However, the Department is not planning to grant “special circumstances” penalty waivers if the taxpayer later requests a waiver of penalties.
  • With respect to the tax years covered, the FAQs confirm that a taxpayer does not have to participate for all open years, but may participate in years under review or under audit if it so chooses.
  • The FAQs state that in the course of reviewing intercompany transactions, the Department will not request documentation on economic substance, and this issue will not be evaluated. The Department, however, will use consultants to assist in reaching a fair resolution of the issues.

All required transfer pricing, tax, and financial information and documentation must be submitted to the Department by 16 October 2020. After the Department reviews the relevant documentation, it will propose an adjustment, and the taxpayer will have 15 days to accept the proposal. One of the FAQs clarifies that “back and forth” negotiations will be allowed during that 15 days. Assuming the parties reach an agreement, the Department will waive penalties for any agreed upon issue. 

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