The Louisiana Department of Revenue (the Department) issued Revenue Information Bulletin No. 21-029 (the Bulletin), inviting corporate income taxpayers to resolve intercompany transfer pricing issues via the Louisiana Transfer Pricing Managed Audit Program (the Program) beginning on November 1, 2021. According to the Bulletin, the purpose of the Program is to “create an efficient and expedited resolution for corporate tax audits when transfer pricing issues exist; and [p]rovide certainty and uniformity to taxpayers on the resolution of transfer pricing issues for open audit periods and a defined period of future tax years.” Requests for approval to participate in the Program must be received by the Department on or before April 30, 2022, and managed audits pursuant to the Program must be closed by June 30, 2022.
The Program works as follows:
- eligible taxpayers provide notice to the Department through e-mail, including contact information of the representative, if any;
- thereafter, the Department will approve or deny the request within 15 days;
- if approved, the taxpayer must sign the Managed Audit Agreement, as required by La. Stat. Ann. §47:1541(D);
- upon execution of the Managed Audit Agreement, the taxpayer must provide within 30 days complete federal tax returns for the last three years, a list of all intercompany transactions (by type, amount and entity) as well as any transfer pricing studies, comparable method studies or applicable agreements; and
- the Department will review the documentation provided and issue a written determination as to whether the Department agrees or disagrees with the taxpayer’s transfer pricing studies and methods used; the Department may utilize external consultants at its option. The taxpayer will have 30 days to accept the determination or offer modifications or adjustments, which would be reviewed by the Department.
Penalties and interest
No penalty will be assessed on any tax due related to the managed audit findings. Delinquency interest that accrues during the managed audit period (from the date of the Department’s notice of acceptance into the Program through the date of the Department’s notice of the correct amount of tax due) will be abated, not to exceed 180 days.
Periods available for resolution include the current tax period (2021 tax year for calendar and fiscal year filers), any open tax periods that have not yet prescribed (i.e., the 2020 tax year and periods open for assessment under the statute of limitations, including periods for which the taxpayer and the Department have entered into an Agreement to Suspend Prescription), and up to four future tax periods.
In order to participate in the Program, a taxpayer must have:
- an established history of voluntary tax compliance with the Department, if previously registered;
- certification that the taxpayer has time and resources available;
- suitable records concerning intercompany transactions; and
- a reasonable expectation of ability to pay the expected liability.
Taxpayers currently under audit (when the audit is in a review, protest, or legal status with the ARAD or Litigation Divisions) may be eligible to participate in the Program, subject to the Department’s approval.
Eversheds Sutherland Observation: Some states already have similar formal and informal programs in place. Read more on the pros and cons of state transfer pricing program participation here. Potentially impacted taxpayers face a number of decisions associated with engaging with the Department, including whether to participate in these programs in advance of an audit notice and how advanced pricing agreements (APAs) could impact current and deferred tax liabilities in states where APAs are already in place and in states where a taxpayer is already engaged in transfer pricing disputes.