The US government has decided to reorganise its efforts in international tax administration in an effort to improve compliance.
On October 1, the Large and Mid-Size Business division of the Internal Revenue Service will become the Large Business and International (LB&I) division.
The new international unit will include a transfer pricing director, who will continue piloting the new transfer pricing practice, and a chief economist, who will oversee the IRS's economic positions pertaining to transfer pricing.
“Bringing in transfer pricing as a part of this group makes perfect sense since that is one of the highest levels of concern for the government as well as for taxpayers,” said Tanenbaum.
“Now that the OECD and Joint Committee on Taxation have come out with their own reports, we need a group that can deal with transfer pricing in a cohesive, centralized and efficient way,” said Alan Granwell, tax partner at the law firm of DLA Piper.
“Particularly when most adjustments are foreign-initiated, we need to have the resources to deal with this and make sure that each side gets the appropriate amount,” he said.
Tax lawyers agree that the move will benefit taxpayers who stand to gain from a more coordinated and centralised group dealing with general international tax issues.
“I think that this reorganisation is a helpful one for a number of reasons including the fact that a move away from an industry focus to a more broad based centralised international focus will create a stronger and more effective effort at curbing cross border tax abuse,” said Edward Tanenbaum, tax partner at the law firm Alston & Bird in New York.
“In my opinion, this is certainly a positive for the IRS as it focuses on tax issues in an ever increasing global economy,” said Don Rocen, tax partner at Miller & Chevalier, a law firm in Washington, DC.
“It should enable LB&I to more readily develop effective international exam strategies, ensure that its international examiners and other exams specialists are all on the same page, and more efficiently execute the audit plans,” he added.
The new set-up will add about 875 employees to the existing staff of nearly 600, though most of the additional examiners, economists and technical staff already work on international issues elsewhere in the LMSB .
The IRS believes international tax compliance for companies and individuals will be strengthened by the new arrangements through:
• Identifying emerging international compliance issues quicker;
• Removing geographic barriers, allowing for the dedication of IRS experts to the most pressing international issues;
• Increasing international specialisation among IRS staff by creating economies of scale and improving IRS international coordination;
• Ensuring the right compliance resources are allocated to the right cases;
• Consolidating oversight of international information reporting and implementing new programmes, such as the Foreign Account Tax Compliance Act (FATCA);
• Coordinating the competent authority more closely with field staff that originate cases, especially those dealing with transfer pricing; and
• Otherwise centralising and enhancing the IRS's focus on transfer pricing.
"Bringing together our top international personnel in this new group will help us advance our global tax administration efforts and ensure focus and fairness in a critical area for our nation," said Douglas Shulman, the IRS commissioner.
Heather Maloy, the commissioner of the LMSB, will take the same role with the LB&I. Michael Danilack, deputy commissioner, international, will head the reorganised global unit. Paul DeNard will continue serving as deputy commissioner (operations).
Tax lawyers applaud the personnel moves.
“The group will have a strong person in Danilack who has been involved in these issues from both the government and private sector sides,” said Tanenbaum.
The LB&I will continue to serve the same taxpayers as the LMSB: corporations, subchapter S corporations and partnerships with assets greater than $10 million as well as certain high wealth individuals.
