North Carolina: FAQs issued on transfer pricing initiative

Listen to a brief overview of state tax developments this week, including North Carolina, or read full North Carolina development below.

Detailed North Carolina Development

The North Carolina Department of Revenue recently issued FAQs on its ongoing initiative to expedite the resolution of corporate intercompany pricing issues. The initiative began August 1 and, 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. One of the FAQs confirms that taxpayers may not come forward and participate in the initiative anonymously, but must identity themselves to the Department. 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 confirms 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. Finally, the FAQ document states that in the course of reviewing the 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. Taxpayers that decide to participate must provide all required transfer pricing, tax, and financial information and documentation to the Department by October 16, 2020. After the Department reviews the relevant documentation, it will propose an adjustment, and the taxpayer will have 15 days to accept the proposal. A FAQ 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. Please contact Nikki Emanuel Jarrell at 704-335-5344 with questions.

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US