Aug 17 New Jersey Transfer Pricing Initiative

On June 16, 2022, New Jersey announced a voluntary initiative that set out to provide an opportunity for corporate taxpayers to expedite the resolution of corporate intercompany pricing issues (IPI). However, you must act quickly as this initiative is only available for a limited period, with a beginning date of June 15, 2022, and continuing through March 2, 2023.

The purpose of New Jersey’s initiative is to create an efficient basis for resolution of this type of corporate tax issue for all open years, provide certainty and uniformity to taxpayers, reduce time in disputes, and fairly and consistently expedite the resolution of IPI subject to adjustment under N.J.S.A. 54:10A-10 and N.J.A.C. 18:7-5.10.

Taxpayers eligible to participate in the initiative include those currently under audit or those notified of an upcoming audit, those with a case pending before the Conference and Appeals Branch, and unidentified taxpayers with related party intercompany pricing. This initiative does not apply to matters in any stage of litigation.

To participate, taxpayers must agree in writing by completing and emailing the form Election to Participate in Transfer Pricing Initiative to [email protected] by September 15, 2022. Additionally, taxpayers must comply with certain terms and conditions that include:

• Providing all required transfer pricing, tax, and financial information to the state by October 31, 2022
• Fully cooperating throughout the process, accepting New Jersey’s proposal within 30 days of issuance
• Execution of NJ Form 906 – Closing Agreement within 30 days after the state issues their settlement proposal
• Paying all tax and interest determined under the closing agreement
• Waiving all rights to review or refund any amounts paid for the period covered under the initiative except for adjustments relating to federal corrections.

Although the taxpayer is the main responsible party to the agreement, they are not the only party subject to strict responsibilities. Under the initiative, New Jersey agrees to propose:

• A settlement amount and methodology based on Internal Revenue Code section 482 and N.J.A.C. 18:7-5.10 within 90 days of receipt of an election form
• Apply the settlement amount and methodology to all open tax years as mutually agreed upon by all parties (including years currently under audit)
• Attempt to settle any corporate tax issues within the covered period, waive all applicable penalties
• Waive rights to assess any additional tax, interest, or penalties except for adjustments relating to federal corrections for all settled tax types.

Taxpayers electing to participate in the initiative must be aware that the election is nonbinding and retain the right to opt-out at any time before signing the Closing Agreement. However, New Jersey also has the right to disqualify any taxpayer who fails to cooperate, provide requested documents/information, disclose all transactions, and comply with this initiative’s previously mentioned terms and conditions.

For certain New Jersey corporations that may have had intercompany transactions with members of an affiliated group with potential IPI, it would be wise to consider taking advantage of this initiative to accurately report net income attributable to the state for all tax years within the statute of limitations for which the taxpayer filed a return. Taxpayers with IPI who fail to participate or do not successfully complete this initiative will be subject to consequences, including assessment of all applicable penalties, no waiver for any penalties, and audits according to New Jersey’s regular audit schedule for which the state will not agree to a methodology or settlement for any unaudited open tax years.

The area of corporate intercompany transfer pricing issues can present numerous complexities and challenges. The SAX LLP State & Local Tax (SALT) team is dedicated to easing the burdens related to this area of business practice for our current and prospective clients. If these issues apply to you, please feel free to contact the SAX LLP State & Local Tax Practice or your SAX LLP engagement partner.

Reach out at:

Edvin Givargis, SALT Partner at [email protected]

John Nunes, Tax Manager at [email protected].