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FIN 48, uncertainty and transfer pricing: (Im)Perfect together?

Author

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  • Borkowski, Susan C.
  • Gaffney, Mary Anne

Abstract

The nexus of Financial Accounting Standards Board Interpretation No. 48: Accounting for Uncertainty in Income Taxes (FIN 48) requirements and a company's transfer pricing practices has created significant reporting and disclosure issues for transnational corporations (TNC) in the United States and its major trading partners. Of interest are changes in TNC disclosures of uncertain tax positions and unrecognized tax benefits, both generally and specific to transfer pricing, and whether TNCs increased advance pricing agreement activities to mitigate transfer pricing-related uncertainty. This study found that FIN 48 implementation led to significant increases in the types and amount of information provided in annual report footnotes about the uncertain tax positions of TNCs, and the quantification of their related unrecognized tax benefits. FIN 48 increased both the quality and quantity of tax-related reporting in the annual reports of its adopters, making their transactions more transparent and understandable to the external users of their annual reports. FIN 48 also seems to have led to an increase in TNC interest in negotiating advance pricing agreements with their own and with related tax authorities in order to mitigate the effects of one of the largest and most uncertain tax positions, cross-border transfer pricing transactions.

Suggested Citation

  • Borkowski, Susan C. & Gaffney, Mary Anne, 2012. "FIN 48, uncertainty and transfer pricing: (Im)Perfect together?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(1), pages 32-51.
    • Handle: RePEc:eee:jiaata:v:21:y:2012:i:1:p:32-51
    DOI: 10.1016/j.intaccaudtax.2012.01.003
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    References listed on IDEAS

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    1. Borkowski, Susan C., 2010. "Transfer pricing practices of transnational corporations in PATA countries," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 19(1), pages 35-54.
    2. Borkowski, Susan C., 2008. "The history of PATA and its effect on advance pricing arrangements and mutual agreement procedures," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 17(1), pages 31-50.
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    Cited by:

    1. Ahmad Saleem Tarwneh, 2019. "The Impact of Decentralization Dimensions on Subsidiaries Performance," International Review of Management and Marketing, Econjournals, vol. 9(1), pages 62-71.

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