Thursday February 16, 3033 – National Review’s Travis Nix asks the question “Who is in charge of tax legislation, the IRS and the Department of the Treasury or Congress. The question is raised because of a recent Tax Court decision of 3M Company vs Commissioner of the IRS.
In the 3M case, the IRS claimed 3M should pay 6% tax royalties on net sales from its Brazilian subsidiary, even though Brazilian Law caps payment at 1%. Thereby double taxing the 5% difference.
The decision allows the IRS to ignore foreign laws which limit inter-company transactions and disregards the keystone of U.S. transfer-pricing regulations that allocate income as if both companies were negotiating with a non-related company, resulting in tax avoidance and evasion.
The decision may have severe economic consequences, such as lost market access for U.S. companies and less economic growth in both countries. Should Congress enact legislation overturning this regulation by mandating the IRS to respect foreign law in transfer-pricing cases?
Attorney Steven A. Leahy reviews this important Tax Court case on Today’s Tax Talk.