Transfer Pricing Withstands U.S. Tax Reform Impacts

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.

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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

Chief Economist and Senior Tax Policy Director

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George L. Salis is Chief Economist and Senior Tax Policy Director. He is an economist, lawyer, and tax professional with 29+ years’ experience in international taxation and trade compliance, tax planning and controversy, fiscal regulation, and tax economics consulting. He is responsible for analysis of economic, fiscal, legal, 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 received his 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 the PhD in international law and economic policy, and the SJD in Taxation from The University of Florida, Levin College of Law. George is a Certified Business Economist (CBE- NABE).

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