Transfer Pricing Withstands U.S. Tax Reform Impacts

  • February 11, 2019

Now that the dust from the U.S. Tax Cuts and Jobs Act (TCJA) is settling, it’s time for a clear look at the implications of this sweeping change on transfer pricing arrangements. A recent TP Week article indicates early prognostications, and one concern in particular, regarding the TCJA’s “significant” impact on transfer pricing were overblown, albeit at least in the foreseeable future.

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“The fact that the corporate rates have flattened out doesn’t change the reality that each jurisdiction is entitled to the proper amount of tax according to traditional transfer pricing norms,” Michael Bernard, chief tax officer-transaction tax at Vertex, says in the article – which also features insights from Nancy Manzano, director in the chief tax office at Vertex. Nancy explains that it would take a far more dramatic change than the TCJA (i.e., formulary apportionment) to do away with transfer pricing’s longstanding arm’s-length principle. (In another Tax Matter post, Michael takes a look at how digital taxation might look under a formulary apportionment approach.)

The TP Week article concludes that while the TCJA has reworked U.S. tax law in significant ways, transfer pricing directors and their teams can rest easy, at least for the moment. “Unless companies have made changes to their supply chains, U.S. tax reform wouldn’t immediately affect their transfer pricing,” Nancy notes. “Tax law doesn’t always change the underlying economics.” Resting easy, alas, is not a luxury for corporate tax professionals managing responsibilities – and a daunting array of external challenges – that extend well beyond transfer pricing and the TCJA.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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George L. Salis, Principal Economist and Tax Policy Advisor at Vertex Inc.  Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

George L. Salis

Principal Economist & Tax Policy Advisor

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George L. Salis is Principal Economist and Tax Policy Advisor who is an economist, lawyer and tax professional with over 28+ years of experience in international taxation and trade compliance, tax planning and controversy, fiscal regulation and tax economics consulting. He is responsible for analysis of economic, legal, financial, trade, and development issues in countries, as well as tracking and analyzing the rapid change in tax policies and regulations, and inter-governmental organizations, and tax administrations around the world.

George is the recipient of the Advanced Certificate in EU Law from the Academy of European Law, European University Institute in Florence, and the Executive Certificate in Economic Development from the Harvard Kennedy School of Government.

George holds a BSc in economics and political science, an LLB (Honours), an MA in legal and ethical studies, and an LLM (Honours) in international tax law. He also holds a PhD in international law and economic policy and is a Certified Business Economist (NABE).

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