International Tax

Transfer Pricing: Litigation Strategy and Tactics (Portfolio 6932)

  • This Portfolio discusses the unique strategic and procedural considerations attendant to contesting through the administrative process and, if necessary, in litigation a transfer pricing dispute identified during the examination phase.


Section I of the Portfolio discusses a taxpayer’s procedural alternatives following the identification of a dispute during examination, and Section II of the Portfolio identifies considerations for the taxpayer in deciding whether to pursue pre-litigation alternatives or instead proceed directly to court. It is at this early stage that the taxpayer must evaluate the impact that its procedural alternatives may have on costs incurred, publicity, timing to resolution, potential settlement, and the disclosure of the taxpayer’s case prior to litigation.

Section III of the Portfolio discusses the key related issue of a taxpayer’s preferred choice of forum, which will determine whether and when payment of the disputed tax liability must be made, the pool of potential judges, the timing of commencement and the course of any litigation, government counsel, discovery, and the availability of alternative dispute resolution.

Section IV of the Portfolio outlines burden of proof considerations, which are particularly important in a transfer pricing case, given the distinct but related burdens of demonstrating that the IRS adjustment was arbitrary and capricious and that the taxpayer’s intercompany pricing met the arm’s-length standard.

Likewise, as discussed in section V of the Portfolio, discovery and objections thereto are particularly important in the transfer pricing context due to the broad factual scope of the inquiry. The burden to demonstrate that the government’s adjustment is arbitrary and capricious, and the potential availability of affirmative refund claims, make discovery of the government potentially more relevant than in other tax cases. Moreover, the international nature of transfer pricing cases and the increased efforts at global cooperation in the discovery process raise concerns over the availability of documents and witnesses located overseas.

Sections VI and VII of the Portfolio address pretrial procedures and the trial of a transfer pricing case, with an emphasis on the development of fact and expert witness testimony, and related evidentiary concerns, given the fact-intensive and complex nature of §482 issues.

Finally, sections VIII, IX, and X of the Portfolio discuss post-trial procedures, appellate review, and the potential for the application of the doctrine of res judicata to transfer pricing decisions and judgments.

This Portfolio may be cited as Stark and Mezei, 6932 T.M., Transfer Pricing: Litigation Strategy and Tactics.

Table of Contents

I. Procedural Alternatives Following Identification of a Transfer Pricing Dispute in Examination

II. Considerations in Deciding Whether to Pursue Pre-Litigation Alternatives or Proceed Directly to Court

III. Choice of Forum

IV. Burden of Proof

V. Discovery

VI. Pretrial Procedures

VII. Trial

VIII. Post-Trial Procedures

IX. Appellate Review

X. Effect of Court Decision or Judgment

Sanford W. Stark
Morgan, Lewis & Bockius LLP
Saul Mezei
Morgan, Lewis & Bockius LLP
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