North Carolina: DOR Announces Voluntary Corporate Transfer Pricing Resolution Initiative

The North Carolina Department of Revenue recently announced that it is implementing a voluntary initiative to expedite the resolution of corporate intercompany pricing issues. In the Important Notice announcing the initiative, the Department notes that certain North Carolina corporate taxpayers may engage in transactions between members of an affiliated group that lack economic substance or are not at fair market value and result in taxpayers inaccurately reporting net income attributable to North Carolina. If the Department determines a taxpayer has an Intercompany Pricing Issue, the Department may redetermine the net income of the corporation properly attributable to its business carried on in North Carolina. The Department’s initiative provides taxpayers with potential Intercompany Pricing Issues an opportunity to fairly and expeditiously resolve with the Department all tax years within the statute of limitations. The initiative will commence August 1, 2020 and generally conclude by December 1, 2020. The Notice sets forth the procedures and timeline for taxpayers that wish to participate. Importantly, by September 15, 2020, taxpayers must agree in writing to participate in the initiative by completing and emailing the Election to Participate form to the Department’s representative or the taxpayer’s auditor if the taxpayer is currently under audit. By October 16, 2020, taxpayers must provide all required transfer pricing, tax, and financial information and documentation to the Department.  After the Department reviews the relevant documentation, it will propose an adjustment, and the taxpayer will have 15 days to accept the proposal.  Assuming the parties reach an agreement, the Department will waive penalties for any agreed upon issue. The Department has regularly been challenging the pricing of intercompany transactions, including transactions documented with formal transfer pricing studies prepared under the principles of IRC Section 482. Please contact Nikki Emanuel Jarrell at 704-335-5344 with questions.