Louisiana adopts transfer pricing managed audit program

November 2021

In brief

On October 26, the Louisiana Department of Revenue announced in Revenue Information Bulletin 21-029 a voluntary initiative for corporate income taxpayers to resolve intercompany transfer pricing issues through a new Louisiana Transfer Pricing Managed Audit Program beginning in November.

Benefits of the program can include waiver of penalties that otherwise would be due based on the results of the managed audit and abatement of interest during the course of the audit. The program covers the current tax period (2021 tax year for calendar-and fiscal-year filers), any open tax periods, and up to four future tax periods.

Requests to participate in the program must be received by the Department by April 30, 2022. Managed audits under the program must close by June 30, 2022.

For consideration: This program offers corporations a path to resolve potentially lengthy audits covering multiple tax periods and free up internal tax department resources. The adoption of such a program is not a surprise given that the state had contracted for training in the transfer pricing arena: this program is the logical next step. The state is not the first to formalize a path for resolving transfer pricing audits; North Carolina launched a similar initiative in 2020.

As the issues around intercompany transactions are complex, corporations need to analyze the implications of participation and the need for a review of their transactions and supporting documentation.

In detail

Purpose and benefits

The department’s stated purpose for initiating this program is to “create an efficient and expedited resolution for corporate tax audits when transfer pricing issues exist” and “provide certainty and uniformity to taxpayers on the resolution of transfer pricing issues for open audit periods and a defined period of future tax years.”

Benefits other than the stated penalty and interest relief may include an increased understanding of how Louisiana tax laws apply to corporations’ business activity and intercompany transactions and decreased disruption to business operations.

Eligibility, procedures, and other details

Participation in the program is limited to taxpayers that have an established history of voluntary tax compliance with the department, can establish they have available time and resources to dedicate to participation in the program, have suitable records available concerning the intercompany transactions, and have a reasonable expectation of the ability to pay any expected liability. The program calls for the department to assign a Field Audit Income Tax (FAIT) Representative to oversee the audit and allows taxpayers to appoint a representative to assist with the managed audit. 

Taxpayers currently under audit are eligible to participate, but only transfer pricing matters can be resolved through this program.

The Revenue Information Bulletin lists detailed, step-by-step, procedures regarding how the audit must be conducted. Upon conclusion of the audit, the department will commence the collection of any tax determined to be due, with no penalty related to the audit findings. Delinquency interest that accrues during the audit period will be abated. 

No certification of whether economic nexus with Louisiana exists will be issued through the program.

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Tina Skidmore

Tina Skidmore

National Practice Leader, State and Local Tax, PwC US

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