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Offshore taxes may slow audits for some U.S. multinationals -IRS

March 19, 2014

By Patrick Temple-West

WASHINGTON, March 19 (Reuters) – Multinational businesses that often fight with the U.S. Internal Revenue Service over their worldwide taxes may be dropped from an IRS program meant to smooth corporate audits, a senior IRS official said on Tuesday.

Speaking at a conference, Michael Danilack, a deputy U.S. IRS commissioner, raised concerns about “transfer pricing” disagreements that complicate a voluntary audit program the tax agency operates with big U.S. companies.

Transfer pricing refers to cross-border movements of capital and assets by multinationals from one unit to another. The tax treatment of such transactions is frequently disputed and consumes a lot of time and resources for the IRS and large corporations.

To help simplify and speed up corporate audits, the IRS in 2011 started a program, known as the “compliance assurance process,” or CAP, where companies can resolve potential tax issues before they file their tax returns each year.

“There is … a question of whether or not a taxpayer who has a myriad transfer pricing issues should be in CAP at all,” Danilack said.

He said that “no one is on the verge of being thrown out of CAP.” But he added, “If we’re not getting transfer pricing work done in the timeframe set for CAP then maybe there is a dialogue that needs to take place.”


Speaking on another panel at the same conference, a senior Justice Department official talked tough about tax dodging, particularly involving Americans’ use of offshore bank accounts.

“We are committed to making the use of foreign bank accounts for U.S. tax evasion an extremely unattractive proposition,” said Assistant Attorney General Kathryn Keneally, who heads the Justice Department’s tax division.

Just minutes after her statements, two U.S. senators called on the Justice Department to seek extraditions from Switzerland of bankers accused of aiding Americans in tax evasion.

“Even if a request is unsuccessful, it will inform both Switzerland and its citizens that the United States is ready to make full use of available legal tools to stop facilitation of U.S. tax evasion and hold alleged wrongdoers accountable,” said senators Carl Levin, a Michigan Democrat, and John McCain, an Arizona Republican, in a letter to the Justice Department.

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