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Transfer Pricing (State)·16 citations·Brief · sample·Generated April 2026

Research Result

Question: What Texas franchise tax transfer pricing rules apply to my client's related-party payments? How do federal § 482 adjustments cascade into Texas?

Practice Brief: Texas Franchise Tax Transfer Pricing & Related-Party Rules

Bottom line: Texas has no standalone transfer pricing statute, but mandatory combined reporting, the related-party addback under Tex. Tax Code § 171.1011(r), and the Comptroller's reallocation authority collectively police intercompany pricing — and any federal IRC § 482 adjustment cascades into Texas within 120 days.

🔴 Action Required

  • Identify all related-party payments (management fees, royalties, interest) made by Texas entities to affiliates outside the combined group and determine whether the addback applies — failure to add back triggers audit exposure. — Tex. Tax Code § 171.1011(r)

  • Calendar a 120-day amended Texas franchise tax return deadline for any client currently under federal audit where a § 482 adjustment is anticipated or has been finalized. — Tex. Tax Code § 171.211

  • Before structuring any intercompany transaction involving a counterparty in Belarus, Iran, Venezuela, Russia, or the DRC, confirm the transaction falls within the applicable OFAC General License — violations carry civil penalties up to the greater of $356,579 per violation or twice the transaction value.

  • Confirm all unitary affiliates (>50% common ownership) are included in the Texas combined group report using Form 05-165 and Form 05-166 — combined reporting is mandatory, not elective. — Tex. Tax Code § 171.1014; 34 Tex. Admin. Code § 3.590

🟡 Monitor

  • Federal § 482 documentation (10 principal documents under Treas. Reg. § 1.6662-6(d)(2)(iii)) must be producible within 30 days of IRS request — Texas has no independent documentation requirement, but federal adjustments cascade directly into the Texas margin computation. — Treas. Reg. § 1.6662-6(d)(2)(iii)

  • Texas uses a single-factor receipts apportionment formula; monitor sourcing of intercompany service charges to ensure costs deducted by Texas entities are properly sourced under the cost-of-performance rule. — Tex. Tax Code § 171.106(a); 34 Tex. Admin. Code § 3.591(e)(27)

  • The Texas statute of limitations extends from 4 years to 6 years if a taxpayer omits more than 25% of total revenue — watch for this exposure in related-party addback situations. — Tex. Tax Code § 111.201

🟢 FYI

  • New OFAC General Licenses for Belarus (GL 14), Iran (GLs S and T), Venezuela (GLs 46, 46A, 46B, 47, 48, 49, 50), Russia (GLs 55E, 115C, 13P, 131C), and DRC (GL 1) were published 2026-05-07 — for practitioners serving clients with cross-border related-party transactions in sanctioned jurisdictions only.

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