Internal Revenue Code Sections 6038 and 6038A impose on the U.S. owners of certain foreign corporations and partnerships and certain U.S. corporations that have significant foreign ownership the responsibility to file extensive and difficult tax forms – Forms 5471 and 5472 disclosing transactions of these corporations and any “related parties”. Non compliance with these filing requirements results in a penalty of $10,000 per failure to comply.
Forms 5471 and 5472
Forms 5471 and 5472 are the primary tools the IRS uses to determine whether companies with international ties are setting fair and realistic prices for the goods and services provided to related parties or are taking advantage of the related party to distort and under report taxable profits through a tax evasion scheme involving “Transfer Pricing”. As a backstop to the Forms 5471 and 5472, the IRS requires these companies to gather proof that the prices they use for related parties sales are fairly set with respect to market prices. The proof must take the form of a “Transfer Pricing Study” and must be done not later than the time at which the company files its annual tax return (a “Contemporaneous Transfer Pricing Study”). Paul Wigg-Maxwell has extensive experience assisting in the preparation of these returns and studies and in dealing with audits and examinations of both.
In 1990, Mr. Wigg-Maxwell was involved in one of the largest transfer pricing cases of that period. He worked full time with a team of attorneys, economist, accountants and other professionals for more than a year on the matter as it went through Appeals, the Tax Court and was moved to a Competent Authority proceeding. The case involved a wide range of goods and many complex issues.
Since 1990, Mr. Wigg-Maxwell has worked with clients to limit Transfer Pricing exposure and to satisfy compliance requirements including drafting contemporaneous transfer pricing studies, competing forms 5471 and 5472, defending companies against penalties for late filing or failure to file forms 5471 and 5472, planning compliance procedures.
FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts.
A foreign tax credit (FTC) is generally offered by income tax systems that tax residents on worldwide income, to mitigate the potential for double taxation.
Transfer pricing is one of the most important issues in international tax.