Public companies that file under US GAAP must quantify uncertain tax positions under US requirements that have become more defined and rigorous.
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) requires companies to recognize, measure, present and disclose uncertain tax positions they take, or expect to take, in their tax returns. FIN 48 has significant practical and technical consequences because it applies to the most complex areas of tax. Effects go well beyond FIN 48’s impact on amounts reported in financial statements because the accounting standard requires companies to disclose uncertain tax positions, including significant transfer pricing issues.
These uncertain tax positions in respect to transfer pricing exist even when related companies use arm’s length transfer prices because a taxation authority may challenge transfer pricing policies based on specific facts and circumstances.
A systematic process for analyzing and updating the effect of uncertain tax positions is critical. All staff with transfer pricing responsibility should become thoroughly familiar with FIN 48 and consider its implications on their company's transfer pricing policies.
How PricewaterhouseCoopers can help
PwC’s global Transfer Pricing practice can provide seasoned assistance to determine and or quantify your FIN 48 transfer pricing exposure.
Contact a member of our Transfer Pricing practice for assistance with FIN 48 compliance.