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The New Jersey Division of Taxation (NJ DOT) is conducting a voluntary transfer pricing initiative that runs from June 15, 2022 through March 2, 2023. During the initiative, New Jersey businesses that pay the state's corporate business tax (CBT) (taxpayers) can expedite the resolution of corporate intercompany pricing issues (IPI) for all open tax years for which the taxpayer has filed a CBT return.

The initiative is aimed at taxpayers whose intercompany transactions with affiliates may not be at fair market value or lack economic substance.

Taxpayers with related party intercompany pricing, including those already under audit or with pending disputes in the Conference and Appeals Branch of the NJ DOT, may participate in the initiative. Taxpayers litigating cases in the courts may not participate in the initiative.

Election to participate

Taxpayers electing to participate in the initiative (electing taxpayers) must email a completed Election to Participate form to the NJ DOT's special email address for the initiative at TaxationTPInitiative@treas.nj.gov on or before September 15, 2022. Electing taxpayers can opt out of their election at any time before signing an IPI Closing Agreement with the NJ DOT.

To comply with the terms of the initiative, electing taxpayers must do the following:

• Provide the NJ DOT with all required transfer pricing, tax and financial information and documentation by October 31, 2022
• Actively cooperate with the NJ DOT
• Accept the NJ DOT's settlement offer within 30 days
• During this period, taxpayers can propose modifications or adjustments to the NJ DOT's offer but must reach an agreement by the end of this period
• The NJ DOT can extend this deadline in its sole discretion
• Sign a Closing Agreement within 30 days after the NJ DOT proposes a settlement
• Pay all New Jersey tax and interest assessed under the Closing Agreement
• Waive all rights to further review or refunds under the Closing Agreement except for refunds resulting from reported federal corrections to taxable income

Waiver of penalties

The NJ DOT will waive all penalties for any IPI issue under a Closing Agreement and waive its right to re-audit participating taxpayers, except for any future federal changes to taxable income that affect a taxpayer's New Jersey CBT liability.

Non-participating taxpayers

The NJ DOT stated that it will not waive any applicable penalties for non-participating taxpayers or those who fail to complete the initiative within the required time frame.

Implications

Given the recent focus on transfer pricing by state taxing authorities, including the outsourcing of transfer pricing audits to third parties by the NJ DOT and several other state taxing authorities, taxpayers should review their transfer pricing agreements to confirm they are current and reflect reasonable transfer pricing arrangements. If they do not, taxpayers should update them accordingly and also consider whether participating in the initiative could be beneficial in resolving any outstanding transfer pricing concerns.

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