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Essential Guide to Transfer Pricing for Your Multinational Business

his article is part of an ongoing series, “Navigating the Complexities of Setting Up a Business in the USA“. View all the articles in the series here.

Key Takeaways:

Implementing effective transfer pricing strategies is essential for regulatory compliance and optimizing your tax position in the U.S.
Transfer pricing helps intercompany transactions align with the arm’s length principle, preventing double taxation and mitigating tax risks.
Meticulous documentation and regularly updated policies are key to maintaining compliance with transfer pricing regulations.

As a multinational enterprise setting up operations in the United States, it is imperative for you to understand the complexities of transfer pricing and intercompany transactions. Effective transfer pricing strategies will help you meet regulatory compliance and improve your tax position.

Fundamentals of Transfer Pricing

Transfer pricing involves setting prices between related entities for transactions — such as the purchase or sale of goods, provision of services, performance of manufacturing activities, cost allocation, or use of intellectual property. This practice of “negotiating” prices between related entities ensures transactions are conducted at “arm’s length”, meaning the prices are consistent with those charged between independent parties. Proper transfer pricing can help you avoid double taxation, mitigate tax risks, and follow U.S. laws.

It is important to note that “related entities” for these purposes involve the concepts of both common ownership and common control. Many taxpayers who fail to understand these concepts also fail to properly address transfer pricing rules and regulations for various transactions.

Regulatory Requirements

IRS Guidelines on Transfer Pricing

The Internal Revenue Service (IRS) provides detailed guidelines on transfer pricing to promote fair pricing practices. These guidelines require businesses to apply the arm’s length principle and provide adequate documentation to justify pricing methods.

Documentation and Compliance

Compliance with U.S. transfer pricing regulations involves meticulous documentation. Companies must prepare and keep detailed records of intercompany transactions — including the rationale for pricing decisions, application of the best method, and evidence that prices meet arm’s length standards. Non-compliance can lead to substantial penalties and adjustments imposed by the IRS.

Setting Up Transfer Pricing Policies

Establishing effective transfer pricing policies requires a thorough understanding of the business model, industry standards, and regulatory requirements. Your company should develop policies that align with the arm’s length principle and keep consistency across all intercompany transactions. Additionally, you should continuously check and update these policies to adapt to any changes in business operations and tax regulations.

For further insights into developing robust transfer pricing strategies, explore our case study on global transfer pricing for a semiconductor leader.

Real-World Transfer Pricing Strategies

Examining real-world examples can offer valuable insights into effective transfer pricing strategies.

Example 1: Goods Transfer

A multinational company based in the United Kingdom sets up a U.S. subsidiary to handle distribution. To follow transfer pricing regulations, the company conducts a thorough analysis to decide proper prices for goods transferred to the U.S. entity, verifying the profitability of the U.S. entity is appropriate.

Example 2: Service Provision

A Japanese company provides technical support services to its U.S. subsidiary. By documenting the cost-plus method, where a markup is added to the costs incurred in providing the services, the company shows compliance with the arm’s length principle.

Example 3: Intellectual Property Licensing

A German firm licenses its proprietary software to a U.S. branch. The firm conducts a detailed analysis to decide the right royalty rate, confirming the transaction meets IRS guidelines and minimizes tax liabilities.

Optimizing Your Transfer Pricing Approach

For multinational businesses moving into the U.S. market, it is vital to understand and implement effective transfer pricing strategies to assist with regulatory compliance, improve tax positions, and support seamless intercompany transactions.

Even if your business is familiar with Organization for Economic Co-operation and Development (OECD) transfer pricing guidelines or currently operates in a country that mirrors them, you need to know the subtleties that may occur should the IRS review your related-party transactions. The IRS will generally abide by U.S. transfer pricing principles without consideration of OECD guidelines. Understanding the differences may help you avoid headaches and create a consistent approach throughout your organization worldwide.

If your business is navigating the complexities of transfer pricing, professional advice and tailored strategies are recommended. For detailed guidance and personalized support, reach out to our International Tax team today.

Setting up a business in the U.S. requires thorough planning and an understanding of various regulatory and operational challenges. This series will delve into specific aspects of this process, providing detailed guidance and practical tips. Our next article will discuss operational strategies for a successful expansion.

Choosing the Right Business Structure for Your U.S. Expansion

This article is part of an ongoing series, “Navigating the Complexities of Setting Up a Business in the USA“. View all the articles in the series here.

Key Takeaways:

Assess different business structures to find the best fit for your U.S. operations and strategic goals.
Understand how each entity type affects your tax obligations and benefits.
Look for legal and tax advice to navigate complex regulations and improve your business setup.

Choosing the right business structure is a critical step in setting up your U.S. operations. The structure you select will affect your tax obligations, legal liability, and potential to raise capital. Additionally, the entity you choose may impact your day-to-day business operations and long-term strategic goals.

Importance of Selecting the Appropriate Business Entity

Selecting the right business entity affects everything from how profits are taxed to the level of personal liability for owners. It also dictates the regulatory requirements you must follow — which can vary significantly depending on the chosen structure.

Types of Business Entities

The main types of business entities available in the U.S. include:

C Corporation (C-Corp) — A standard corporation subject to corporate income tax. This structure is beneficial for businesses that plan to reinvest profits into the company or seek public investment.

Limited Liability Company (LLC) — A flexible entity that can be taxed as a sole proprietorship, partnership, or corporation. It offers liability protection while providing tax flexibility.

Foreign corporation with or without a U.S. branch — This setup allows a foreign company to do business in the U.S. without forming a separate legal entity. However, it comes with its own set of tax and legal considerations. It is crucial to consider both sides of the equation when deciding the entity structure, as cross-border operations can be complex and require careful planning.

Keys Factors to Consider When Selecting an Entity.

When choosing a business structure, consider the following:

Tax implications — Different structures have varying tax rates and filing requirements
Legal considerations — The level of liability protection varies by entity type. C-Corps and LLCs generally offer more protection against personal liability than sole proprietorships or partnerships
Operational needs — Consider how the chosen structure will affect your business operations. For instance, C-Corps can raise capital more easily through stock sales, while LLCs offer greater flexibility in management and profit distribution. Additionally, forming a U.S. entity may simplify transactions with other U.S. businesses versus operating as a foreign corporation with a U.S. branch.

Making the Right Entity Decision for Your U.S. Expansion

Selecting the right business entity is crucial for the success of your U.S. operations. To determine what the right entity is for you, it is important to evaluate all factors — including tax implications, legal protections, and operational needs. Consulting with legal and tax professionals can help you make an informed decision that aligns with your business goals.

Need help choosing the right business structure for your U.S. expansion? Reach out to our International Tax team today to get professional guidance tailored to your specific needs.

Understanding U.S. Taxes for Your Foreign Business

This article is part of an ongoing series, “Navigating the Complexities of Setting Up a Business in the USA“. View all the articles in the series here.

Key Takeaways:

Follow U.S. tax requirements by understanding federal, state, and local obligations.

Adjust your business strategy for the U.S. market by accounting for sales tax variations.

Utilize tax treaties to minimize tax burdens and navigate international tax rules effectively.

Navigating the U.S. tax system is a critical aspect of doing business in the United States. Unlike other countries with a single national tax system, the U.S. has a multi-layered structure that includes federal, state, and local taxes. Each layer has its own set of regulations and compliance requirements, which can be varied and complex.

For foreign businesses, this system can be challenging — especially if you are accustomed to a more centralized tax framework. In the U.S., tax obligations can arise not only from physical presence but also from sales or services delivered into a state, requiring your business to report to multiple agencies. It is important to recognize these distinctions for both compliance and tax strategy.

Federal Tax Obligations

What creates a taxable presence for federal income taxes is uniform across the country. Your business must file annual income tax returns with the Internal Revenue Service (IRS), detailing your income, expenses, and tax liabilities. Federal taxes include corporate income taxes, certain payroll taxes, and other specific levies.

While federal taxes are uniform across the country, they may be overridden by an enforceable income tax treaty (more on those below). The uniformity of federal taxation is also, unfortunately, not consistent for state taxation.

State and Local Tax Considerations

State and local taxes vary significantly across the U.S. Individual states can impose income taxes, sales taxes, property taxes, and other business-related taxes on your company. The complexity is further compounded by the fact that different authorities may have unique regulations about what triggers tax obligations — such as physical presence, sales volume, or the delivery of services.

The triggers at the state level do not necessarily coincide with the federal triggers. This can be both an opportunity for tax planning for your company and a potential pitfall if you are not careful.

Value-Added Tax Versus Sales Tax

Unlike the value-added tax (VAT) systems in many other countries, the U.S. sales tax system varies widely from state to state. While businesses in places like Europe often deal with a single national VAT system, the U.S. requires navigation through state and local sales tax regulations — each with its own rates and rules, creating a complex compliance landscape.

While VAT is a tax applied at each stage of the supply chain based on the added value, U.S. sales tax is typically collected only at the ultimate point of sale to the end consumer. This distinction can influence pricing strategies, cash flow management, and overall tax planning for your business.

Impact of Income Tax Treaties

Tax treaties between the U.S. and other countries can influence how your foreign business is taxed. These treaties often provide benefits such as reduced tax rates, exemptions from certain taxes, or simplified compliance requirements. However, they require careful navigation for proper application. The presence of a tax treaty between the U.S. and your home country can affect how you should structure your business operations when entering the U.S. market.

Tax treaties aim to avoid double taxation and ease international trade. They typically cover aspects like income tax on royalties, dividends, interest payments, as well as defining what constitutes a taxable presence. Understanding these treaties is essential for improving tax liabilities and staying compliant with regulations in both the U.S. and your home country.

Navigating U.S. Taxes for Your Foreign Business

Successfully managing U.S. taxes requires a comprehensive understanding of federal, state, and local tax obligations, the nuances of sales tax versus VAT, and the strategic use of income tax treaties. To optimize your tax position and minimize compliance risks, you should prioritize thorough planning and seek professional advice.

How MGO Can Help

MGO’s International Tax team can help you navigate these complexities and develop effective strategies for your U.S. operations. Our experienced team can assist you with tax planning, compliance, treaty analysis, and structuring your business for optimal tax efficiency. For more detailed insights and help, reach out to our team today.

Setting up a business in the U.S. requires thorough planning and an understanding of various regulatory and operational challenges. In this series, we will delve into specific aspects of this process, pro

Case Study: How MGO Helped a Financial Advisory Firm Better Manage Cash Flow

Background:

Cash flow is the lifeblood of any business. It enables an organization to meet its financial obligations, such as paying bills and processing payroll, while also planning for future expenses and investments.

Effective cash flow management is even more critical for financial advisory firms, which often deal with fluctuating income tied to market performance and client transactions.

MGO offers comprehensive cash flow management services to give businesses a clear view of their financial status and future projections, helping them make informed decisions and maintain financial stability.

Challenge:

A financial advisory firm with $10-$15 million in annual revenue faced significant challenges due to a lack of visibility into its cash flow. The primary issues included:

Unpredictable income — The firm’s income was inconsistent and linked to market performance, net asset value (NAV), and insurance commissions. This unpredictability made it difficult to align revenues with expenses.

Vendor payments — Vendors naturally want to be paid as fast as possible. Without proper cash flow management, the company sometimes rushed payments rather than taking advantage of a net 30- or 60-day payment terms, reducing cash flow flexibility.

Expense management — The firm’s limited ability to plan for future expenses or manage unexpected costs added financial strain and uncertainty.

Tax planning — Without a forward-looking perspective, the firm could only react to tax liabilities after the fiscal year closed, missing opportunities for proactive tax planning and efficiency.

Partner draws — Partners were unsure about the amount they could safely draw from the business, which added personal financial stress and impacted overall business planning.

These challenges resulted in a reactive approach to financial management, with the firm often scrambling to cover expenses and make payroll, leading to sleepless nights for the management team.

Approach:

MGO thoroughly analyzed the firm’s cash flow, identifying key inflows and outflows. This included understanding vendor payment schedules, client payment patterns, and the firm’s unique business aspects.

We developed a detailed cash flow model that projected future cash flows and enabled the firm to plan for upcoming expenses. This model could handle various “what-if” scenarios, such as the impact of a delayed payment from a major client or unexpected expenses.

We also helped the company leverage net 30 or 60 payment terms with vendors to improve its cash flow flexibility. This approach allowed payments to be made strategically rather than reactively.

With improved visibility into future cash flows, the firm could accelerate expenses or defer income as needed to optimize tax liabilities and enhance tax efficiency.

Value to Client:

MGO’s cash flow management services gave the firm a clear and accurate view of its cash flow, enabling better financial planning and critical decision-making.

The management team no longer faced sleepless nights worrying about cash flow issues. They knew exactly how much cash was available, when additional funds might be needed, and how to plan for future financial needs.

With clear insights into cash flow, partners could make informed decisions about draws, and personal financial planning, reducing uncertainty and stress.

They could also proactively plan for taxes to reduce liabilities, enhance overall tax efficiency, and free up cash flow.

Your Trusted Cash Flow Management Advisor

MGO’s Client Accounting Solutions professionals have decades of experience helping clients’ lower costs, make more informed decisions, and boost performance.

Contact MGO today to learn how we can transform your approach to cash flow management and tax planning from reactive to proactive and help you achieve greater financial stability, strategic flexibility, and peace of mind.

Case Study: Understanding the Impact of Cross Segregation Studies

Tax Partner Michael Silvio shares how MGO helped a client save upwards of $1.6M in taxes, along with an additional $2.2M in depreciable assets. By conducting a thorough cost segregation study and reducing the property’s land value from 40% to 15%, the MGO team went beyond the standard approach, assessing the land vs. building value and using insights from the county assessor. Michael explains how MGO’s attention to detail sets them apart from other firms in delivering substantial tax savings.

‘We took the time to really assess the need and then also go a little further and not just do the cost segregation study, but look at the land versus building value, go out to the county assessor website, see what the value is and see if there are any ways we could reduce it. And that’s where I think we add more value than other companies that do cost segregation studies.’

New Jersey Enacts Corporate Transit Fee

Key Takeaways:

New Jersey enacted a corporate transit fee entailing a 2.5% tax on corporate business taxpayers that have New Jersey allocated taxable income of more than $10 million.

The tax is effective for privilege periods beginning on and after January 1, 2024, through December 31, 2028. Because of the June 28, 2024, enaction date, you should evaluate the impact on your effective tax rates for ASC 740 purposes.

Those taxpayers who were subject to the former CBT surtax should not assume that they will be subject to the transit fee, given both the allocated taxable income floor of $10 million and the definition of “taxpayer” that the transit fee has.

On June 28, New Jersey enacted a corporate transit fee, a 2.5% tax on some corporation business tax (CBT) payers that have New Jersey allocated taxable net income in excess of $10 million.[1] The fee is effective for privilege periods beginning on and after January 1, 2024, through December 31, 2028.

All revenue collected from the corporate transit fee will be deposited into the general fund. Beginning in state fiscal year 2026, the revenue will be appropriated annually to support New Jersey Transit’s operating expenses and pay for matching funds required to receive federal funding for eligible New Jersey Transit capital projects.

The Former CBT Surtax

For tax years beginning on or after January 1, 2018, through December 31, 2023, New Jersey assessed a 2.5% surtax on “each taxpayer, except a public utility, that has allocated taxable income in excess of $1 million.”[2]

The former CBT surtax defined the term “taxpayer” to include any business entity subject to tax as provided in the Corporation Business Tax Act.[3] It defined allocated taxable net income as “allocated entire net income for privilege periods ending before July 31, 2019, or taxable net income as defined in [the Corporation Business Tax Act] for privilege periods ending on and after July 31, 2019.”

Regarding applicable payments and credits against the former CBT surtax, no credits were allowed against the surtax liability computed under the relevant statutory section except for credits for installment payments, estimated payments made with a request for an extension of time for filing a return, or overpayments from prior privilege periods.

The Transit Fee

As noted above, the new legislation has retroactive applicability to tax years beginning on or after January 1, 2024.

Unlike the former CBT surtax, the transit fee has an explicit exclusion for S corporations. It defines the term “taxpayer” as “any business entity or combined group that is subject to tax, as provided in the Corporation Business Tax [Act], except not including any S corporation or public utility.”

The allocated taxable income floor to be subject to the transit fee is higher than that under the former CBT surtax: The fee applies to taxpayers with allocated taxable income in excess of $10 million in New Jersey. However, it applies to all income, not just that over $10 million.

The transit fee defines the term “allocated taxable net income” as taxable net income, which is the entire net income allocated to New Jersey, less applicable New Jersey net operating losses.

Like the former CBT surtax, the transit fee is applied in addition to the New Jersey CBT rate of 9%.

No credits are allowed against the corporate transit fee liability computed except for credits for installment payments, estimated payments made with a request for an extension of time for filing a return, or overpayments from prior privilege periods.

Applicability of the Transit Fee to CBT Combined Groups

A transit fee taxpayer is defined to include a combined group, which is generally a group of companies that have common ownership and are engaged in a unitary business. Combined groups are to be treated as a single taxpayer.[4]

The New Jersey Division of Taxation has provided additional guidance on the transit fee’s applicability to combined groups.[5] Despite the exclusion of those groups from the definition of taxpayer, the allocated net taxable income of public utilities and S corporations in a combined group is included when determining if that group is subject to the transit fee.

Insights

Given the June 28, 2024, enaction date, taxpayers should evaluate the impact on their effective tax rates for ASC 740 purposes.
Taxpayers that were subject to the former CBT surtax cannot assume they will be subject to the transit fee, given both the allocated taxable income floor of $10 million and the transit fee’s definition of taxpayer.
Despite the exclusions for public utilities and S corporations, combined groups that have such members must be cautious because the allocated income of those entities is taken into consideration when determining transit fee applicability.
The statute excludes only public utilities and S corporations from the definition of taxpayer, so the transit fee may apply to entities such as real estate investment trusts, regulated investment companies, and investment companies.

How MGO Can Help

New Jersey’s new corporate transit fee could very well shape an already complex tax environment — but MGO is poised to support your business in navigating these challenges. Our experience in tax planning and compliance, coupled with a deep understanding of state tax regulations, enables us to provide tailored solutions after evaluating the impact of the transit fee on your effective tax rates for ASC 740 purposes that align with your organization’s strategic objectives.

Reach out to our team today to learn how we can help you optimize your tax strategy and comply with the new corporate transit fee in New Jersey.

[1] 2024 N.J.A. 4704.

[2] N.J. Rev. Stat. §54:10A-5.41(a)(1).

[3] Id. at §54:10A-5.41(b)(1).

[4] 2024 N.J.A. 4704(a); N.J. Rev. Stat. §54:10A-4(z).

[5] New Jersey Division of Taxation, “Corporate Transit Fee” (July 3, 2024).

Case Study: How MGO Helped a Product Development Company Maximize the R&D Credit

Background:

Since the 1980s, the Research and Development (R&D) credit has been providing businesses with incentives to innovate.

An essential component of qualifying for the R&D tax credit is incurring research and experimental (R&E) expenses.

Until recently, businesses were able to deduct these expenses in the year paid or make an election to amortize them over 60 months. However, a provision in the Tax Cuts and Jobs Act of 2017 changed how businesses deduct R&E expenditures.

Starting in 2022, businesses must capitalize and amortize these expenses over 60 months rather than immediately deducting them. This change has been financially devastating for companies investing in innovation.

Challenge:

A product development company focused on the nutrition and fitness markets faced significant expenses associated with developing innovative workout products and ingestible pre- and post-workout recovery supplements.

With an annual revenue of $122 million, the company made considerable investments in R&D — totaling $2 million to $4 million over the last several years.

Since the company could not deduct those expenses in the year they were incurred, it needed to recoup some of the costs to sustain its research initiatives.

Approach:

MGO brought its extensive tax experience to the table to help this product development company navigate the complexities of the R&D credit.

We verified the company’s R&D activities aligned with the four-part test to qualify for the credit and all projects were rigorously documented with records directly linking them to the four-part criteria.

Value to Client:

Through careful evaluation and strategic planning, MGO helped the client secure a substantial net federal and state R&D credit benefit of $250,000 for a single tax year. The company used these credits to offset its federal and state tax burden.

This demonstrates the significant impact that R&D credits can have on a company’s financial health. The $250,000 credit enabled the client to reinvest in its innovative product pipeline, maintain a competitive advantage, and continue developing groundbreaking nutrition and fitness products.

Your Trusted R&D Tax Credit Advisor

MGO’s tax professionals have more than 30 years of experience helping you document, file, and defend tax credit claims.

Contact MGO today to discover how we can help you maximize R&D tax credits to support your growth and innovation journey. Our team is ready to guide you through the complexities of tax incentives and deliver tailored solutions that fuel innovation and business growth.

Tennessee Approves Franchise Tax Refunds for Limited Time

Key Takeaways:

Tennessee recently repealed the franchise tax property measure, enabling taxpayers to request refunds for overpayments from tax years ending on or after March 31, 2020.
Franchise tax filers may qualify for refunds for up to three years; refund claims must be filed between May 15 – November 30, 2024.
Taxpayers using the property measure to calculate estimated payments should contact their tax advisor for further guidance.

On May 10, 2024, the Tennessee legislature signed into law Public Chapter 950 (2024), which repeals the property measure (“minimum measure”) of the franchise tax for tax years ending on or after January 1, 2024. For a limited time, Tennessee taxpayers who used the property measure to calculate tax liabilities for tax years ending on or after March 31, 2020, may request a refund to the extent those liabilities exceeded the amount of tax that would have been calculated using the net worth measure.

What to Consider…

Refund Claims

Refund claims must be filed between May 15, 2024, and November 30, 2024.
You may request a refund if you paid franchise tax using the property measure for tax years ending on or after March 31, 2020 (“FT-13 – Property Measure Repeal – Tennessee Department of Revenue”).
The amount of tax you may be refunded is based on the portion of taxes paid using the property measure that exceeds the amount you would have owed under the net worth measure.
Any credits (e.g., jobs tax credit) in excess of the amounts allowed on the amended returns will be reinstated with applicable carryforward rules and will not be refunded.

Refund Procedure

The Tennessee Department of Revenue issued Franchise and Excise Tax Notice #24-05 providing detailed guidance on the procedure to request a refund.
The two-step process to claim refund:
- 1) Amend return according to state guidance, and
- 2) File refund claim form
A completed Report of Debts should also be included with the refund claim if you are requesting a refund of $200 or more.
Refund claims must include a statement waiving the right to file a suit alleging that the franchise tax is unconstitutional for failing the internal consistency test.
If you would like to address other issues outside of Public Chapter 950, those issues should be handled through separate filings.
The Department strongly encourages taxpayers to file refund claims using TNTAP, Tennessee’s online website for filing taxes, to expedite the refund process.

Public Disclosure of Taxpayer Information

The Tennessee Department of Revenue must publish the names of taxpayers who receive refunds and the applicable range of refunds received. Specific refund amounts are not published. The refund ranges will be the following:

$750 or less,
more than $750 but less than or equal to $10,000, and
more than $10,000

The information will be published May 31, 2025, and remain on the website through June 30, 2025.

Estimated Payments

If you are a taxpayer who has been using the property measure to calculate 2024 estimated payments, you should adjust your remaining estimated calculations and payments to account for a lower apportioned net worth base.

Alternatively, the state allows taxpayers to make an annual election to continue to use the minimum property measure if it results in a higher tax. Taxpayers with credit carryforwards should consider this election if there is a risk the credits will expire. If the election is made, the taxpayer waives any claim that the minimum property measure base is unconstitutional by failing the internal consistency test.

How MGO Can Help

Our State and Local Tax (SALT) Team can help submit your refund claim in accordance with state guidelines and procedures, in a timely manner. Need assistance requesting your Tennessee franchise tax refund? Reach out to our team today.

Are You Ready to Optimize Your Tax Efficiency for Rescheduling?

Key Takeaways:

Cannabis companies face critical tax decisions following the notice of proposed rulemaking to reschedule cannabis.
Areas of consideration include reviewing open and estimated tax years, as well as assessing your current structure and its costs/benefits moving forward
Companies should also prepare for potential M&A opportunities and explore tax credits and incentives that could become available in a post-rescheduling world.

The federal government’s proposal to move cannabis from Schedule I to Schedule III carries significant tax implications beyond the (non-)application of 280E. It’s essential for your business to navigate this new landscape and make informed decisions to optimize your tax position.

Here are four key areas to consider:

1. Reviewing Open and Estimated Tax Years

Now is the time to review prior year tax returns, considering recent court cases and other factors to determine if protective claims or amended returns are warranted and could be beneficial. Evaluating how recent events should impact your 2024 quarterly estimated tax payments and future tax strategies is crucial.

2. Structuring for Post-280E Tax Efficiency

Legal and operating structures designed for a 280E environment may no longer be optimal post-rescheduling. Assess the costs and benefits of maintaining your current structure and explore tax-efficient alternatives to avoid phantom income and simplify transactions between related companies.

3. Navigating M&A Tax Considerations

With merger and acquisition (M&A) activity expected to accelerate, it is crucial to optimize your company’s tax structure for potential transactions. Whether you’re an acquirer or a target, understanding the tax due diligence process and making informed decisions in light of the rescheduling announcement is essential.

4. Leveraging Tax Credits and Incentives

Post-rescheduling, cannabis companies can finally take advantage of federal, state, and local tax credits and incentives previously unavailable. Identifying and qualifying for credits related to research and development, employees, clean energy, and more will be beneficial for your business.

How MGO Can Help You

MGO’s dedicated Cannabis practice has the experience and knowledge to help you navigate the complex tax implications and opportunities of rescheduling. Reach out to our team today.

Case Study: Maximizing Tax Savings for a Medical Clinic Network

MGO’s tax guidance helps a health and medical corporation uncover $8 million in tax savings.

Background:

A West Coast chain of medical laboratories worked with various national accounting firms over the years. The client was referred to MGO by both their attorney and an outside consultant, who recognized MGO’s ability to provide exceptional service and identify potential tax savings opportunities.

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Opportunity:

During a review of the client’s 2021 corporate tax return, MGO’s team discovered the previous national CPA firm had failed to properly account for the newly introduced California pass-through entity (PTE) tax — which resulted in a loss of an $8 million deduction for federal tax purposes.

Approach:

MGO’s experienced tax professionals thoroughly analyzed the client’s financial situation and tax obligations, identifying the oversight regarding the California PTE tax. The team worked diligently to correct this error, enabling the client to receive the appropriate tax deduction.

Value to the Client:

By identifying and correcting the previous CPA firm’s oversight, MGO was able to secure a substantial tax deduction for the client — totaling $8 million. The savings proved extremely valuable to the shareholders, providing substantial additional resources for the company to reinvest in the business.

Get more from your tax strategy

MGO can help optimize your business tax position with solutions for tax compliance and planning, tax provisions (ASC 740/FIN 48), IPO structuring and inversion analysis, and more. Reach out to us today to learn how we can help you.