KPMG report: Pillar Two implications of U.S. self-initiated transfer pricing true-ups
Examples of how U.S. entities’ transfer pricing true-ups may affect GloBE ETR in the United States or a foreign jurisdiction
KPMG report: Pillar Two implications of U.S. self-initiated transfer pricing true-ups
When preparing their tax return, taxpayers often determine that a transfer pricing adjustment is needed because the prices charged during the year in a controlled transaction did not produce an arm’s-length result. U.S. transfer pricing regulations under IRC section 482 allow U.S. taxpayers to report the results of controlled transactions based on prices different from those actually charged in order to reflect an arm’s-length result.
Because the Organisation for Economic Co-operation and Development (OECD) Pillar Two global anti-base erosion (GloBE) rules focus on determining the effective tax rate (ETR) of a multinational enterprise (MNE) on a country-by-country basis, how an MNE’s profits are allocated between countries is a key consideration in applying the GloBE Rules. Under the GloBE rules, a taxpayer is generally required to adjust its GloBE income if the taxable income of one or more of its group members is determined using a transfer price different from the transfer price reflected in its financial statements due to a transfer pricing adjustment. However, the GloBE rules do not allow a taxpayer to adjust its GloBE income for certain transfer pricing adjustments.
The impact of a U.S. entity’s transfer pricing true-up on U.S. and foreign GloBE ETR will depend on whether the adjustment is bilateral or unilateral, whether the U.S. GloBE ETR in prior years is less than 15%, and whether the adjustment increases or decreases U.S. taxable income.
Read a February 2024 report [PDF 1.3 MB] (16 pages) prepared by KPMG LLP that lays out several examples of how U.S. entities’ transfer pricing true-ups may affect GloBE ETR in the United States or a foreign jurisdiction.
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