New Jersey Offers Transfer Pricing Initiative

June 2022

BY

Scott SmithManaging Director, State and Local Tax Technical Leader

Laurie DickerTechnical Practice Leader, National Transfer Pricing

Kate PascuzziManaging Director, National Tax Controversy & Procedure Practice

The New Jersey Division of Taxation announced June 16 that it will implement a voluntary Transfer Pricing Initiative running from June 15, 2022, through March 2, 2023 that is intended to expedite the resolution of corporate intercompany pricing issues. However, given the specific provisions of the initiative, taxpayers should proceed cautiously.
 
The initiative applies to all filed corporation business tax returns open under New Jersey’s four-year statute of limitations of taxpayers with intercompany transactions that could be subject to a transfer pricing adjustment. Unidentified taxpayers with related-party intercompany pricing issues are eligible for the initiative. Taxpayers can be under audit, notified of an upcoming audit or currently have a case pending before the division’s Conference and Appeals Branch. However, the initiative does not apply to matters at any stage of litigation.
 
To participate in the initiative, taxpayers must complete an Election to Participate form by September 15, 2022, and email the form to [email protected]  To successfully complete participation in this initiative, the taxpayer must comply with the following requirements:
  • Taxpayers must provide all required transfer pricing, tax and financial information and documentation by October 31, 2022;
  • Cooperate fully in the initiative;
  • Taxpayers will have 30 days to accept the division’s proposal. Taxpayers may offer modifications or adjustments to the proposal within this time frame, but an agreement must be reached by the end of the 30-day period. Extensions to this 30-day deadline will be allowed on a case-by-case basis at the division’s discretion;
  • Sign a closing agreement no later than 30 days after the division proposes a settlement amount;
  • Pay all New Jersey tax and interest as determined under a closing agreement; and
  • Waive all rights to review or refund of any amounts paid for the period covered under the initiative, except for refunds due as a result of federal corrections.
 
If the taxpayer successfully completes the initiative, the division agrees to the following:
  • Propose a settlement amount and methodology within 90 days of a properly completed Election to Participate form.
  • The settlement amount and methodology may be applied, at the parties’ mutual agreement, to all open tax years, including years currently under audit;
  • Attempt to settle any corporate tax issues for the tax periods covered by this initiative;
  • Waive all applicable penalties; and
  • Waive all rights to assess any additional tax, interest or penalties except for adjustments relating to federal corrections for all settled tax types.
 
The Election to Participate is nonbinding, and the taxpayer retains the right to opt out of the initiative at any time before signing the closing agreement. However, the guidance indicates that for taxpayers that do not elect to participate in the initiative by September 15, 2022, or do not successfully complete the initiative, the division will assess all applicable penalties, not waive any penalties, audit according to the division’s regular audit schedule and not agree to a methodology or settlement for any unaudited open tax years.