South Carolina Department of Revenue retains Bates White expert in corporate income tax disputes
In several tax disputes, the South Carolina Department of Revenue (SCDoR) retained David DeRamus to evaluate a number of companies’ transfer pricing policies and to assess whether the companies’ resulting state corporate income tax filings reasonably reflected the companies’ economic activities in South Carolina. The SCDoR alleged that the companies’ use of separate entity reporting did not fairly reflect their business activities in the state and assessed taxes due for the inappropriately excluded businesses using a combined entity apportionment method.
Transfer pricing is increasingly a state as well as a federal tax issue. Companies have taken certain positions, and the state authorities question whether those positions accurately reflect the companies’ activities in their state and whether the companies have paid an appropriate level of taxes in their individual states.
The cases for which Dr. DeRamus was retained generally involved companies in the retail sector. He analyzed related-party transactions involving tangible goods, headquarters services, financing, trademarks, and asserted trade secrets. He also analyzed the companies’ prior restructurings involving transfers of certain functions and intangible assets between their US affiliates and evaluated whether the related-party prices were consistent with arms-length dealings and the applicable transfer pricing regulations. In addition, he assessed the reasonableness of the resulting allocation of profit among the companies’ affiliates. He testified at three separate trials.
In Tractor Supply Co. v. South Carolina Dept. of Revenue, the court found Dr. DeRamus’ analysis “especially well articulated and persuasive” and found in favor of SCDoR. In CarMax Auto Superstores, Inc. v. South Carolina Dept. of Revenue, the court noted that Dr. DeRamus “testified . . . with a rigor and reason that made him more persuasive in several areas.” The court also upheld the use of combined unitary reporting as a reasonable alternative apportionment method to the company’s use of separate entity reporting, given the distortions caused by the company’s transfer pricing and its prior corporate restructuring. Several other cases where SCDoR had retained Bates White have settled prior to trial.