IRS, China, Wal-Mart Reach Tax Accord

Agreement aims to settle transfer-pricing disputes before they arise in an audit.
Helen ShawJanuary 12, 2007

The Internal Revenue Service announced Friday that it reached the first advance pricing agreement, involving Wal-Mart Stores, between the United States and China.

“We’re working closely with China as they develop their tax administration system,” said IRS commissioner Mark Everson in a statement.

The agreement is part of an IRS program to resolve transfer-pricing issues before they arise in an audit. Transfer pricing — in which two parties, typically units of the same company but in different countries and tax jurisdictions, provide goods or services to each other and charge for them across national borders — can result in double-taxation disputes. Tax authorities worldwide have also long worried that companies may game the system by raising profits in lower-tax jurisdictions and lowering them in higher-tax regions.

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According to an IRS statement, the program of advance-pricing agreements enables the agency and the company to resolve possible tax disputes under U.S. law and applicable treaties. It also gives the company greater confidence that its transfer-pricing methods will be upheld during an audit.

The IRS has named transfer pricing as a top priority in its enforcement efforts. Last September GlaxoSmithKline paid the agency a record $3.4 billion to settle a transfer-pricing dispute.

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