New Jersey has introduced a voluntary transfer pricing initiative that began June 15, 2022 and ends March 2, 2023. Through this initiative, corporate business taxpayers can expedite resolution of corporate intercompany pricing issues for all open years of corporate business tax returns filed.
Interested taxpayers must file an Election to Participate form before September 15, 2022. All taxpayers with intercompany pricing issues are eligible, including those already under audit or notified of an upcoming audit and those with pending disputes in the Conference and Appeals Branch of the New Jersey Department of Taxation (DOT). Taxpayers with cases currently in litigation are excluded from participating in this program.
To comply with the terms of the initiative, the following is required:
- Taxpayer must provide the DOT with all required transfer pricing, tax, and financial information and documentation by October 31, 2022.
- Taxpayer must actively cooperate with the DOT.
- Taxpayer must accept the DOT’s settlement and sign a Closing Agreement within 30 days.
- During this time period, adjustments may be proposed, as long as a settlement is reached by the end of 30 days.
- The deadline may be extended at the discretion of the DOT.
- Taxpayer must pay all New Jersey tax and interest assessed as provided in the Closing Agreement.
- Taxpayer must waive all rights to further review or refunds under the Closing Agreement, with the exception of refunds related to federal changes to taxable income.
Under this initiative, the DOT will expedite the settlement process by providing a proposed settlement agreement within 90 days of receiving all information requested. All open years will be included, and all applicable penalties and the right to reaudit participating taxpayers will be waived.
The state’s approach is unusual in that most voluntary programs do not simply provide a settlement amount with forced acceptance. It appears that the settlement amounts could be based on comparables or allocation factors that are favorable to the state, while ignoring the nature of the transactions, which in a domestic transfer pricing context, are frequently straightforward types of intercompany transactions that have a known universe of arm’s-length outcomes. The program’s approach directly contradicts the intent of an arm’s length standard necessary in federally approved transfer pricing calculations.
Participation in this program should be discussed with your Ryan tax professional, as the consequences of not participating in this temporary initiative will include an assessment of all applicable penalties. No penalties will be waived, and audits will occur on a regular schedule and will not include an agreement for all open years. Contact your Ryan tax professional today to avoid penalties and ensure participation by the September 15 deadline.
TECHNICAL INFORMATION CONTACTS:
Mark L. Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com
Mary Bernard
Manager
Ryan
401.272.3363
mary.bernard@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.