Cleaning Up After Chevron: A Proposed Cross-border Pipeline for the Transfer Pricing of Intra-group Debt Transactions


The use of cross-border intra-group debt transactions to facilitate corporate tax planning faces heightened scrutiny by taxing authorities in light of the G20/Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting Project. This Note examines risks presented by the puzzling legal regime applicable to the transfer pricing of intra- group loans, using the recent Australian Chevron case as an illustrative vehicle, and proposes a solution through the Internal Revenue Service’s (“IRS”) Advance Pricing and Mutual Agreement (“APMA”) Program. The APMA Program facilitates the negotiation of binding contracts through which a taxpayer and at least one taxing authority delineate sanctioned transfer pricing methodologies applicable to specified transactions over a fixed term that generally spans at least five prospective years. IRS data suggests that taxpayers have not commonly leveraged the APMA Program to price intra-group loans, presumably owing in part to the bespoke nature of loans, the time and cost required to strike a deal with taxing authorities, and the difficulty of predicting financing needs years in advance. Nevertheless, this Note argues that the APMA Program is fundamentally a process that allows parties to agree on pricing methodologies—not standalone prices. Therefore, this Note suggests that certain multinational enterprises with high-volume or high-risk internal financing arrangements could benefit from locking in the underlying methodologies used to price their intra-group loans, thereby limiting the risks demonstrated by Chevron and the fluctuating regulatory environment. This Note also explores the possibility of establishing “mandatory” participation in the APMA Program where a taxpayer has already demonstrated a lack of compliance with arm’s length debt pricing.

56 Colum. J. Transnat'l L. 123.