Transfer pricing: sketchiest of the sketchy?

Reuters reports on the uncertain tax position (UTP) filing requirement, under which big corporate taxpayers (those with more than $100,000 in assets) must inform the IRS if they are taking a position that they view as "uncertain or vulnerable to challenge."  In other words, if you're taking a position you know is a little bit sketchy or a little bit dodgy, you're obligated to alert the IRS to it.  According to the IRS commissioner, the two biggest disclosure issues are transfer pricing and research & development credits.  Transfer pricing represents 19% of these disclosures:

IRS Commissioner Doug Shulman said at a congressional hearing that, since the beginning of the year, about 1,900 businesses have filed "Schedule UTP" information.

"A lot of the large business issues are international issues - the most serious one is transfer pricing. That's where we're shifting our large business operation," Shulman said.

...This is an area of frequent and intense international tax disputes between businesses and the agency.

Others have suggested that transfer pricing is basically impossible to police; here is a recent take from Brazil.