Transfer pricing enforcement is undergoing significant changes in both the United States and Ireland, with the two jurisdictions actively moving in different directions. While the United States is experiencing internal resource constraints and interpretive shifts, Ireland is actively expanding its enforcement capabilities. This Insight examines these developments and outlines how taxpayers can prepare for evolving expectations around documentation, recharacterization, and cross-border dispute resolution.
Transfer pricing controversy continues to evolve across both the US and Irish landscapes, with the two jurisdictions taking notably different paths regarding resources and enforcement capabilities.
In the United States, the Internal Revenue Service (IRS) is navigating a period of significant internal disruption. The agency has experienced a 25% decline in headcount this year alone, with even sharper reductions within IRS Appeals, primarily among senior personnel. Retirement among experienced staff and broader attrition are expected to slow resolution timelines in Appeals and may further erode the perception that Appeals provides independent judgment.
These trends may reduce the attractiveness of IRS Appeals as a dispute forum, pushing more taxpayers toward alternative dispute mechanisms such as mutual agreement procedures, advance pricing arrangements (APAs), and prefiling agreements (PFAs). While the IRS recently reformed its PFA program and published clearer guidance on eligible issues, the long-term effectiveness of these efforts remains uncertain amid widespread staffing constraints.
In Ireland, the experience is quite different. The Irish tax and customs administration (the Revenue Commissioners or Revenue) is actively expanding its capacity, particularly within the Competent Authority function, in response to growing cross-border controversy activity. Staffing has also increased on the audit side, with a focus on multinationals and compliance interventions stemming from initial inquiries.
Key areas of scrutiny include third-country adjustments, stock-based compensation, intercompany interest rates, and IP valuations involving amortization claims. Transfer pricing audits are increasing in volume and sophistication, supported by upskilling within audit teams and enhanced cross-border collaboration.
As institutional capacity in the United States and Ireland continue to move in opposite directions, this divergence could lead to asymmetries in dispute resolution processes and timelines, particularly in matters involving bilateral coordination.
Recharacterization of intercompany transactions remains a key point of friction in both US and Irish tax controversies, with authorities in both jurisdictions demonstrating greater willingness to disregard taxpayer structuring in favor of their own factual determinations.
From the Irish perspective, recent audits have reflected a growing trend of authorities disregarding contractual arrangements and economic studies in favor of recharacterizing the substance of cross-border structures. For example, tax authorities in jurisdictions such as Spain or Italy have in some cases rejected the notion that Ireland is the entrepreneurial jurisdiction in a given transaction, instead asserting that the relevant functions should be attributed to their own jurisdictions.
This shift effectively upends the taxpayer’s original pricing and risk allocation. While Organisation for Economic Co-operation and Development (OECD) guidance (notably under BEPS Actions 6–8) reaffirms that contracts should remain the analytical starting point, a lack of sufficient supporting evidence can make such recharacterizations difficult to defend.
In the United States, the IRS maintains a broader toolkit to recharacterize transactions by drawing on a mix of statutory provisions and judicial doctrines, including substance over form, step transactions, assignment of income, and economic substance. While historically used outside of the transfer pricing context, these doctrines are now surfacing more frequently in international tax controversies, with the IRS alleging that transactions lack business purpose or fail to reflect real economic change.
Even without explicitly invoking recharacterization, the IRS often challenges taxpayers that have, in the IRS’s view, too much profit overseas, asserting that foreign affiliates should receive only routine benchmarkable returns while attributing residual profits to the United States.
Across jurisdictions, taxpayers’ risks may stem from insufficient evidentiary support rather than technical noncompliance. Taxpayers are increasingly expected to document their business purpose, decision-making, and economic rationale in real time, beyond the four corners of contracts and transfer pricing reports. This level of preparation is quickly becoming essential to help mitigate the risk of tax authorities successfully recharacterizing transactions.
Recent developments in US guidance have signaled a shift in the IRS’s approach to periodic adjustments under the commensurate-with-income standard, raising potential tension with the arm’s-length principle. Historically, the United States has emphasized reliance on ex ante information, or what the business or taxpayer knew at the time of pricing a transaction. Ex post results, such as actual income, were generally considered only in limited circumstances when ex ante projections were inadequate.
IRS GLAM 2025-001 marks a departure from this standard by placing greater weight on ex post outcomes, even when contemporaneous projections were robust. The GLAM suggests that actual income may be as relevant as projections in traditional transfer pricing methods. This shift raises concerns about consistency with the arm’s-length standard, particularly because the IRS continues to view these adjustments as a “one-way street,” i.e., refunds are not granted when actual results fall short of projections.
By contrast, OECD guidelines and Irish practice continue to prioritize ex ante pricing. Revenue authorities in Ireland typically reference actual results only when uncertain, hard-to-value intangibles are involved. Even in such cases, the emphasis remains on what was known and reasonably foreseeable at the time of the transaction. Documentation practices that clearly capture contemporaneous assumptions and business risk assessments in detail remain a cornerstone of defensible pricing positions.
The divergence between US and OECD approaches creates even more uncertainty for multinational taxpayers. While taxpayers price transactions based on business estimates available at the time, adjustments based on hindsight or actual results not known at the time of the transaction may undermine certainty and fairness. In this environment, APAs, particularly bilateral ones, are emerging as a key tool for achieving predictability and avoiding costly disputes over periodic adjustments.
As tax authorities in the United States and Ireland continue to develop distinct enforcement strategies, multinational taxpayers face growing complexity in managing transfer pricing disputes. Inconsistent approaches to evidentiary standards and pricing adjustments may create greater uncertainty and increase controversy risk.
To maintain predictability, companies should prioritize strong contemporaneous documentation and consider early engagement through bilateral APAs and other available resolution mechanisms.
Caroline Austin, Joseph Duffy, and Philip Tully of Matheson LLP co-authored this Insight based on our recent co-hosted webinar US-Ireland Transfer Pricing & Tax Controversies: An Update on Navigating the “Rough Waters” of the Irish Sea and the Atlantic.