Insights | Valentra Tax Advisors

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AI & Professional Responsibility

AI in Transfer Pricing: What the New IRS Guidance Means for Documentation and Benchmarking

The IRS Office of Professional Responsibility recently issued guidance on generative AI use in federal tax practice (Alert 2026-19) — and it lands squarely on the kind of work we do every day in transfer pricing.

AI tools are increasingly part of the process — drafting a local file narrative, running a first-pass comparability search, or generating initial language on functional and risk analysis. That is real efficiency. But Circular 230 draws some clear lines around how that efficiency gets used:

Your name is still on the report. §10.22's due diligence standard means every AI-drafted section — functional analysis, industry overview, comparable set — gets independently checked before it supports a filed position. A fabricated fact pattern or a misapplied IQR calculation does not hold up under IRS scrutiny.

Fee transparency matters when AI speeds up drafting. §10.27(a) flags billing patterns where AI cuts the hours spent on a first draft or a database search, but the client invoice does not reflect it.

Know your tool, or don't use it. §10.35 requires understanding not just §482, §6662, and the related regulations, but how your AI platform generates narrative and selects comparables — including where its logic might quietly introduce error or bias into work meant to withstand IRS review.

Written advice needs verified inputs. §10.37 means AI-generated language on functional and risk characterization, comparable adjustments, or profit level indicators gets confirmed against source data before it lands in a report a client relies on.

Section 6662(e) has not gotten easier. Contemporaneous documentation still has to reflect genuine analysis and reasonable, verified assumptions — not an AI draft that has never been stress-tested against the facts, regardless of how polished the language reads.

At Valentra Tax Advisors, we treat AI the way this guidance describes: a real accelerant for documentation drafting and comparability research, paired with the same rigor we would apply to any transfer pricing position — because in this field, the defensibility of the analysis is the whole point.

#TransferPricing #ArmsLengthStandard #Circular230 #TaxCompliance #TransferPricingDocumentation

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Tax Strategy

Transfer Pricing & International Tax: Two Sides of the Same Coin

Transfer pricing and international tax are usually discussed as separate specialties. In practice, they're two views of the same underlying question: where is value created, and who has the right to tax it?

The Shared Question at the Core

Every multinational group faces the same basic challenge: it operates across borders, but tax systems are built around national boundaries. Transfer pricing rules decide how much profit sits in each country based on functions, assets, and risks. International tax rules decide which country gets to tax that income stream.

Transfer pricing asks: given our value chain, how should profit be split between entities so each is compensated at arm's length?

International tax asks: given where profit sits, what is our liability, and are we using treaties and structures compliantly?

Get transfer pricing wrong, and your international tax position is built on a flawed foundation. Get international tax planning wrong, and even a defensible transfer pricing policy will not save you from double taxation or treaty disputes.

Why This Matters More Than Ever

Substance is non-negotiable. Tax authorities no longer accept profit allocations unsupported by real economic activity.

Pillar One and Pillar Two blur the line further by directly tying minimum tax obligations and profit reallocation to transfer pricing outcomes.

Disputes increasingly touch both areas at once, routinely turning on transfer pricing evidence during permanent establishment or CFC audits.

Transfer pricing and international tax are two expressions of the same core question about value and taxing rights. Treating them as genuinely integrated is a necessity for any multinational that wants a defensible, coherent tax position.

#TransferPricing #InternationalTax #BEPS #PillarTwo #TaxStrategy

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Compliance & Documentation

Transfer Pricing Documentation: The Story Behind the Numbers

For many multinational businesses, transfer pricing documentation is treated as a year-end compliance requirement. That view is understandable, but it misses what good documentation actually does.

Documentation is far more than a box-checking exercise; it is the cornerstone of your global tax audit defense strategy. When built properly, it transforms complex intercompany transactions into a clear, defensible commercial narrative.

It signals credibility with tax authorities. Contemporaneous documentation provides clear evidence that intercompany pricing was reasonable and at arm's length at the time decisions were made.

The IRS looks for substance over boilerplate. Connecting specific operational facts to financial analyses supports deselecting transfer pricing issues during examination.

It forces operational and financial rigor. Evaluating functions, assets, and risks across entities surfaces operational changes or pricing policies that quietly drifted out of alignment.

It provides management with global visibility. Done right, documentation unifies financial, legal, and operational views across cross-border divisions in a single framework.

It protects against statutory penalties. Under IRC §6662(e), having timely, compliant documentation is essential to qualify for penalty protection if adjustments ever occur.

It shortens audit cycles and reduces legal costs. Preparing evidence early is far less costly than attempting to reconstruct facts years later during an active audit.

It builds an institutional knowledge asset. Living documentation streamlines post-merger integration, supports future restructuring, and scales as global tax policies shift.

The real question is whether companies treat documentation as a once-a-year tax compliance burden or as a strategic governance asset. At Valentra Tax Advisors, we help multinationals build robust, audit-ready documentation that protects their bottom line and clearly articulates their economic reality.

#TransferPricing #TransferPricingDocumentation #TaxCompliance #IRS #Section6662

Perspective on where transfer pricing is heading.