Beginning November 1, 2021, the Louisiana Department of Revenue (“Department”) will be offering taxpayers the opportunity to participate in a voluntary transfer pricing “managed audit” program (the “Program”). Pursuant to a recently released Department information bulletin, the purpose of the 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 years.
In exchange for participating, qualified taxpayers will benefit from a waiver of all penalties that otherwise would be assessed on audit, plus abatement of interest accrued during the course of the managed audit.
Corporate taxpayers must meet the following requirements to qualify:
- Established history of voluntary tax compliance with the Department (if the taxpayer has previously registered with the Department)
- Certification that the taxpayer has available time and resources to dedicate as a participant in the Program
- Available and suitable records concerning intercompany transactions
- Reasonable expectation of ability to pay an expected liability
Taxpayers reaching an agreement with the Department to participate in the Program will be authorized to conduct a managed audit with respect to intercompany transactions under supervision of a Department field audit income tax representative. Documentation required to be disclosed to the Department in connection with the managed audit includes: federal tax returns, a listing of all intercompany transactions, transfer pricing studies (with detail regarding comparable methods used and agreements with the IRS), organization charts, financial statements, etc.
The managed audit generally will cover the current tax period (2021 tax year for calendar and fiscal year filers), any prior tax periods where the statute of limitations remains open (including periods currently under audit), and up to four future tax periods. Taxpayers interested in participating in the Program must apply by April 30, 2022, and all managed audits must be completed by June 30, 2022.
Baker McKenzie Insight
Louisiana’s “managed audit” Program echoes recent initiatives in Indiana and North Carolina (see our coverage of those programs here). Similar to those initiatives, the Louisiana Program is purportedly designed to provide an efficient mechanism for taxpayers to resolve audit disputes and promote certainty for future periods with respect to intercompany transactions. However, as with the Indiana and North Carolina programs, businesses with operations across the U.S. and beyond should be cautious of these programs and carefully review and consider any transfer pricing methodologies proposed by the states. Furthermore, each of these states are reportedly active participants in the Multistate Tax Commission’s State Intercompany Transactions Advisory Service (“SITAS”) Committee, which recently considered executing an interstate information exchange agreement, whereby confidential taxpayer information may be disclosed among participating states. See “The Multistate Tax Commission Is Primed to Revamp Its Multistate Transfer Pricing Collaboration and Enforcement Initiatives,” for our earlier coverage. To this end, participation in these programs does nothing to resolve similar issues taxpayers may have in other states (e.g., there is no current state mechanism to enter into bi-lateral or multi-party pricing arrangements), while raising serious questions about taxpayer confidentiality. We will continue to monitor developments in Indiana, Louisiana, North Carolina, and any other states following suit.
Contact the authors: Maria Eberle, Lindsay LaCava, Mark Yopp, Nicole Ford, Drew Hemmings, and Dmitrii Gabrielov