On November 9, the Multistate Tax Commission’s Transfer Pricing Committee met to continue its effort to develop and implement a comprehensive transfer pricing program, through which states can identify and remedy allegedly distortive pricing with respect to intercompany transactions. On the heels of closed meetings in October, at which states discussed specific taxpayer information, the Committee is continuing to pursue additional states for participation.
Since 2014, the Multistate Tax Commission (“MTC”) has been developing a comprehensive transfer pricing program to help participating states identify and remedy allegedly distortive pricing with respect to intercompany transactions. An official MTC Committee was formed—previously known as ALAS and now known as SITAS (State Intercompany Transaction Advisory Service Committee)—to provide participating states with a comprehensive service to combat allegedly distortive intercompany pricing. (See Reed Smith’s prior coverage.)
SITAS held a telephonic meeting November 9 and the following states participated: Alabama, Indiana, Kentucky, Maryland, New Mexico, North Carolina, and Pennsylvania.
Increased State Interest
The recurring obstacle for SITAS has been gathering sufficient state participation. The original design of the transfer pricing program assumed that, at a minimum, 10 states would agree to participate and financially support the program. To date, only five states have agreed to be charter members of the program: Alabama, Iowa, New Jersey, North Carolina, and Pennsylvania.
But that number may be on the rise. The Committee held closed meetings October 5–6 in Indianapolis, Indiana. Seven states attended those meetings: Alabama, Louisiana, Massachusetts, Mississippi, New Jersey, North Carolina, and Pennsylvania. In order to attend those meetings, each state had to execute the Participation Commitment and Exchange of Information Agreement (the “Agreement”), which authorized the states to discuss specific taxpayer information, ongoing audits, and intercompany transactions of concern. The Agreement is also designed as a participation agreement, although no financial commitment results from a state’s execution of the Agreement. Between the states that have agreed to be charter members of the transfer pricing program, and the states that have executed the Agreement, the number of states with serious interest in the program has now risen to eight.
With an increase in interested states from five to eight in less than two months, SITAS is hopeful that the number of member states will continue to rise. An additional three states that are neither charter members nor signatories to the Agreement participated in yesterday’s call: Kentucky, Maryland, and New Mexico. If these states ultimately join the program, SITAS could have as many as 11 members.
SITAS appears revitalized by the increase in state interest and support. SITAS intends to schedule another closed meeting similar to the meetings in Indianapolis to discuss specific taxpayer information. No official date has been set, but SITAS is hoping to schedule the meeting in conjunction with the MTC Meetings to be held March 8–10 in San Diego, California. Another conference call will be scheduled early in 2017, at which time the details of the March meetings will likely be solidified.
For more information on how the SITAS program, and other state intercompany pricing initiatives, could affect your business, contact the authors of this Alert or another member of the Reed Smith State Tax Group.
Client Alert 2016-295