The three taxpayers cited in our release dated February 12, 2018 have recently reached a tentative settlement agreement with the District of Columbia Office of Tax and Revenue (OTR). The administrative law judge (ALJ) in these cases strongly urged the parties to settle. In several other cases before a different ALJ, the parties have also come to a tentative settlement agreement with respect to their transfer pricing issues. However, two remaining cases are headed to trial. Those would be the assessments against Pfizer, Inc. and Ahold USA Holdings, Inc. The parties in these cases are expected to provide the ALJs a status report by May 23, 2018.
In short, the “Chainbridge Method” of transfer pricing involves developing a “Comparable Profits Model” for an industry and then applies this model in a generic fashion to taxpayers in that industry. In 2012, the taxpayer in Microsoft v. OTR1 was granted an order of summary judgement against the OTR to dismiss an assessment related to a “Chainbridge Method” audit. The ALJ in that case held that the “Chainbridge Method” was arbitrary, capricious, and unreasonable.
Fortunately, the District of Columbia is no longer contracting with Chainbridge. However, it appears that several other states, mentioned in our February 28, 2018 release, are still using Chainbridge.
1 Microsoft Corporation v. Office of Tax and Revenue, District of Columbia Office of Administrative Hearings, No. 2010-OTR-00012, May 1, 2012.