The most important value driver within the tax department is certainty. In a cycle of radical tax transformation occurring in the world of international tax and transfer pricing today, certainty can seem out of reach. Aptis aims to bring clarity in a cycle of complexity by grounding the transfer pricing strategy within the reality of the business. Whether it is achieved through the application of the commensurate with income law or the economic substance doctrine, the Internal Revenue Service will seek to align the characterization of the transaction with the arm's length standard. The "Master file Light", largely based on 10-K information for many multinationals, will beg more questions than answered, blindly leading the taxpayer down a path of recharacterization with most any jurisdiction. The strategic preparation of documentation that describes the nature of the overall business and the intercompany relationships that drive the transactions under analysis is now table stakes.

Aptis has redesigned the framework and flow of the Master file to meet the expectations of the OECD member countries and align with the principal documents defined by the penalty regime of Internal Revenue Code 1.6662(e). We have also reshaped the Local file to ensure the most fluid and simplistic process in creating these varied reports.

Our experience in audit defense roles has been to ensure consistency and factual accuracy in sync with the assumptions available at the time of the transaction. Any further evidence showing why the current of profitability may have shifted ex-ante is also mission critical to a recharacterization defense. These catalogs of evidence, perhaps supported by a simple memo to file, could also impact other surrounding international tax issues beyond transfer pricing and should be pressure-tested for consistency in factual content as well as key assumptions supporting business purpose. 

References: Arm’s length standard (“ALS”) in Treas. Reg. § 1.482-1(b)(1); the specific periodic adjustment rules in Treas. Reg. §§ 1.482 4(f)(2) and 1.482-7(i)(6), and economic substance doctrine (§ 7701(o)).