IRS Issues Final 367 Regulations
The IRS issued final regulations relating to certain transfers of property by United States persons to foreign corporations. The final regulations affect United States persons that transfer certain property, including foreign goodwill and going concern
value, to foreign corporations in nonrecognition transactions described in section 367 of the Internal Revenue Code.
December 16, 2016
US Regulations Under Section 385
The IRS issued final and temporary regulations under section 385 of the Internal Revenue Code that establish threshold documentation requirements that ordinarily must be satisfied in order for certain related-party interests in a corporation to be treated as indebtedness for federal tax purposes, and treat as stock certain related-party interests that otherwise would be treated as indebtedness for federal tax purposes. The final and temporary regulations generally affect corporations, including those that are partners of certain partnerships, when those corporations or partnerships issue purported indebtedness to related corporations or partnerships.
Effective October 21, 2016
Country by Country Reporting
On June 30, 2016 the IRS issued the final Country-by-Country Reporting regulations, following up on the proposed regulations which were issued on December 22, 2015 and incorporating comments received on the proposed regulations. The final regulations maintained the proposed reporting threshold such that the regulations apply to entities residing in the United States that are the ultimate parent of multinational enterprise groups with annual revenue of USD $850,000,000 or more for the preceding annual accounting period.
In December 2016, the IRS issued the draft Form 8975 and its accompanying draft Schedule A for reporting the country-by-country information, and in February 2017, the IRS issued draft instructions for completing the Form 8975 and Schedule A.
The IRS has also issued Revenue Procedure 2017-23, which describes the process for filing Form 8975 and Schedule A by ultimate parent entities of U.S. multinational enterprise groups for annual accounting periods that begin on or after January 1, 2016, but before June 30, 2016. This process would apply to multinationals that must comply with foreign country requirements that have earlier effective dates than the U.S. regulations.
June 2016, December 2016, January 2017, and February 2017
Revenue Proc. 2015 - 40
This Revenue Procedure, effective as of October 30, 2015, provides guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team of the Deputy Commissioner (International), Large Business & International Division of the Internal Revenue Service.
Revenue Proc. 2015 - 41
On August 12, 2015 Revenue Procedure 2015-41 was published, which provides guidance on the process of requesting and obtaining advance pricing agreements from the Advance Pricing and Mutual Agreement program, as well as guidance on the administration of executed APAs.
This document contains final regulations that provide
guidance regarding the treatment of controlled services
transactions under section 482 and the allocation of
income from intangible property, in particular with
respect to contributions by a controlled party to the
value of intangible property owned by another controlled
party. This document also contains final regulations
that modify the regulations under section 861 concerning
stewardship expenses to be consistent with the changes
made to the regulations under section 482. These final
regulations potentially affect controlled taxpayers
within the meaning of section 482. They provide updated
guidance necessary to reflect economic and legal
developments since the issuance of the current guidance.
IRS Revenue Procedure
2007-13 identifies specified covered services that
are support services and generally do not involve a
significant arm's length mark-up. The identified
services must meet the other conditions set forth in the
Services regulations in order to be evaluated under the
Final Cost Sharing Regulations - Effective December 16, 2011
In August 2005, proposed regulations relating to cost sharing arrangements were
issued. The Treasury Department and the IRS collected
extensive comments on a variety of issues addressed in
the August 2005 regulations. In response to these
comments, temporary regulations (released on
January 5, 2009) made several significant changes to the rules provided in the
August 2005 proposed regulations. On December
16, 2011 the IRS released the
final cost sharing regulations.
The final regulations implement practically all of the requirements contained in the
temporary regulations. These regulations provide
guidance regarding methods under section 482 to
determine taxable income in connection with a cost
sharing arrangement. These regulations affect controlled taxpayers within the
meaning of section 482 that enter into cost sharing
In addition, effective December 19, 2011 the IRS issued new
temporary and proposed regulations
that add or would add additional provisions to the final regulations.
Guidance Regarding Foreign Base Company Sales Income
This document contains final and temporary regulations that
provide guidance relating to foreign base company sales
income in cases in which personal property sold by a
controlled foreign corporation is manufactured,
produced, or constructed pursuant to a contract
manufacturing arrangement or by one or more branches of
the controlled foreign corporation. These regulations
modify the foreign base company sales income regulations
to address current business structures and practices,
particularly the growing importance of contract
manufacturing and other manufacturing arrangements.
GAO Report on Transfer Pricing
The Government Accountability Office ("GAO") issued a report entitled "Information on the Potential Impact on IRS and U.S. Multinationals of Revised International Guidance on Transfer Pricing." The report analyzes the potential effects of the OECD's revised transfer pricing guidelines and new transfer pricing documentation, including country-by-country reporting. More specifically, GAO examined (1) how likely it is that the action would reduce BEPS, (2) what is known about the potential administrative and compliance costs of the action, and (3) what is known about the potential effects the actions could have on the U.S. economy.
IRS Memorandum on Exchange of Tax Information
This memorandum from the IRS Associate Chief Counsel (International) addresses the issue of when legal responsibilities to protect tax return information arise in the context of electronic data transmission through the Common Transmission System (CTS). The CTS is being developed under the OECD Forum on Tax Administration in order to facilitate the automatic exchange of financial account information, country-by-country reporting, and other exchanges of information between tax administrations. The IRS determined that information that will be transmitted by the IRS to foreign tax administrations (outbound transmissions) through the CTS is return information under section 6103 in the hands of the IRS, so throughout the exchange process should be protected as required by section 6103. Furthermore, that information becomes treaty-protected information in the hands of the foreign country when the information is exchanged pursuant to a tax convention or other international agreement on taxes. In the case of information provided to the IRS by foreign tax administrations (inbound transmissions) through the CTS, the moment when legal protection arises is less certain.
June 17, 2016 (released October 14, 2016)
Barriers exist to properly evaluating transfer pricing issues
The Treasury Inspector General for Tax Administration ("TIGTA") issued a report entitled "Barriers Exist to Properly Evaluating Transfer Pricing Issues." TIGTA found that: (i) the IRS provided external stakeholders adequate education and outreach related to the transfer pricing examination process; (ii) some IRS employees may not be consistently following the Transfer Pricing Audit Roadmap; (iii) the IRS does not have a process to ensure that all transfer pricing issues are identified for specialized review because 20 percent of the transfer pricing inventory is received from the Specialist Referral System; (iv) Transfer Pricing Practice ("TPP") employees do not have access to the Specialist Referral System and are reliant on International Business Compliance ("IBC") function management to share any transfer pricing referrals with them; (v) the Rules of Engagement between the TPP and the IBC function are not always being followed for working transfer pricing-related examinations; and (vi) there are no separate performance measures related to quantifiable results to determine the success of the IRS’s transfer pricing efforts, including Appeals determination information that could be used to better refine the approach for identifying and working cases.
September 28, 2016
U.S. Treasury White Paper on the European Commission's State Aid Investigations
The U.S. Department of the Treasury has issued a White Paper on the state aid investigations being undertaken by the European Commission. Treasury states that these investigations, if continued, have considerable implications for the U.S. government and for U.S. companies—in the form of potential lost tax revenue and increased barriers to cross-border investment. The White Paper discusses Treasury's concerns with respect to these investigations, which include a concern that the European Commission is not adhering to the OECD's Transfer Pricing Guidelines but rather is employing a different arm’s length principle that is derived from EU treaty law.
August 24, 2016
IRS Releases Competent Authority Statistics
On April 27, 2016 the Internal Revenue Service released its competent authority statistics for 2015, comprising data from the Office of the United States Competent Authority, which includes both the Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team. The report contains statistics on cases handled by both; however does not include Advance Pricing Agreement information, which is published in a separate report. Information presented includes number of requests received, cases resolved and pending cases.
April 27, 2016
Report Concerning Advance Pricing Agreements
On March 31, 2016 the Secretary of the Treasury issued its annual report to the public concerning advance pricing agreements and the Advance Pricing and Mutual Agreement Program corresponding to calendar year 2015. The report includes information on the structure, composition and operation of the Program, statistical data for 2015, and general descriptions of diverse elements in the advance pricing agreements executed during 2015, such as transactions covered, transfer pricing methods applied, and completion time.
March 31, 2016
Coordination of Transfer Pricing Rules with Other Code Provisions
This document includes final and temporary regulations, effective on September 14, 2015, that clarify the coordination of the application of the arm’s length standard and the best method rule under section 482 of the Internal Revenue Code in conjunction with other provisions of the Internal Revenue Code. There is particular emphasis on the analysis of transfers of intangible property, including examples demonstrating coordination of section 482 with other sections of the Internal Revenue Code.
September 16, 2015
IRS Releases Transfer Pricing Audit Roadmap
The IRS has developed a Transfer Pricing Audit Roadmap to provide transfer pricing practitioners with audit techniques and tools to assist with the planning, execution and resolution of transfer pricing examinations.
February 17, 2014
IRS Releases Draft Procedure Related to APA Transparency
Proposal reflects structural changes undertaken by the IRS since 2006, including the establishment of the Large Business & International Division and the creation of the Advance Pricing and Mutual Agreement Program.
November 22, 2013
IRS Finalizes Cost Sharing Rule Describing New Specified
Application of Income Method
Cost sharing rule that describes a new specified
application of the income method in Section 482-7(g)(4)
for directly determining the arm's length charge for
platform contribution transactions, or buy-in payments.
August 26, 2013
IRS Seeks Comments on Bilateral Safe Harbors for Certain
Transfer Pricing Issues
The IRS specifically seeks comments on bilateral safe
harbors with regard to arm’s length compensation for
routine distribution functions.
March 15, 2013
Chipmaker Altera and IRS in Transfer Pricing Case
The IRS is seeking $27 million in tax payments, contending that from 2004 through 2007 Altera
wrongly booked expenses for employee stock-based
compensation in the United States where the expenses
were tax deductible, according to court records.
July 24, 2012
American Bar Association's Section of Taxation Issues
Letter to IRS Commissioner Shulman Regarding the Advance
Pricing Agreement Program
ABA's Section of Taxation provides comments on the advance pricing and
mutual agreement program, and focus on ways the program
can be improved. Particularly, the comments address (i) developing
safeguards to ensure the prevention of double taxation;
(ii) efficiency; (iii) treatment of renewal APA Requests;
and (iv) information policies in the prior APA
January 5, 2012
Proposed Revocation of a Customs Ruling Letter Relating
to Post-Importation Adjustments; Transfer Pricing;
Related Party Transactions; and Reconciliation
U.S. Customs is proposing to consider recognizing
downward adjustments in a transfer price for imported
merchandise, made after the date of entry, when the
reduction in price is in conformity with an existing
corporate transfer pricing policy. The recognition of a
post-entry decrease in price would prompt a right to a
refund in duties. The specific issue addressed in the
policy statement will be whether a post-entry adjustment
which was made to conform to an international transfer
pricing tax compliance program will be recognized for
December 28, 2011
Prepared Remarks of IRS Commissioner Doug Shulman before
the 24th Annual Institute on Current Issues in International Taxation
Commissioner Shulman's remarks discuss
how the IRS is establishing networks of experts,
including international examiners, lawyers, economists,
and others, to collaborate on tax issues. The
Commissioner highlighted the transfer pricing practice
as an area that had been "a bit scattered," so the IRS
created a single program under a single executive.
The Commissioner also talked about a successful joint
audit with another country of a tax payer with a
transfer pricing issue. In six months, the two
governments worked together to solve the complex issue,
and a transfer pricing methodology was agreed on for
December 15, 2011
Western Union/First Data Settles $2 Billion Transfer
The Western Union Company announced
that it has reached an agreement with the IRS
resolving all remaining issues related to the
restructuring of its international operations in 2003.
The agreement covers Western Union's tax treatment for
imputed intangibles income, trademark buy-in royalties,
and other items. As a result of the agreement, the
Company will make cash payments to the and
various state tax authorities of approximately $220
million, which are in addition to a $250
million tax deposit made with the IRS in
2010 connected to the potential liability.
December 15, 2011
U.S. Customs and Border Protection Requests Advance Public Comments on Treatment
Relating to the Applicability of Transaction Value and
Many importations into the United States involve
transactions between related parties, which present a
number of appraisement issues, such as ensuring that the
relationship between the parties does not affect the
price. Moreover, such transactions often involve
arrangements in which the parties have in place formal
inter-company policies that call for adjustments after
importation to the price paid (i.e., the transfer
price). These arrangements raise the issue of whether
transaction value is the proper basis of appraisement
and, if so, how to treat the adjustments.
September 23, 2011
President Obama Adresses Transfer Pricing in Plan for
Economic Growth and Deficit Reduction
The plan's proposals aim to reduce the nation's deficit
by $19 billion over 10 years. "Notwithstanding the
transfer pricing rules, there is evidence of income
shifting offshore, including through transfers of
intangible rights to subsidiaries that bear little or no
foreign income tax. Under the proposal, if a US parent
transfers an intangible to a controlled-foreign
corporation (CFC) in circumstances that demonstrate
excessive income shifting from the US, then an amount
equal to the excessive return would be treated as
subpart F income."
September 19, 2011
IRS Announces its Realignment of the Advance Pricing
Agreement Program and Mutual Agreement Program
The IRS' Advance Pricing Agreement Program and its
Mutual Agreement Program will shift from the office of
IRS Chief Counsel to an office under the Transfer
Pricing Director in the Large Business & International
division. Effectively, the two programs will be under a single executive.
July 27, 2011
IRS Guidance on Uncertain Tax Positions
The IRS offered guidance to taxpayers about reporting
their uncertain tax positions to the government,
addressing key questions surrounding the recording of a
July 19, 2011
Prepared Remarks of IRS Deputy Commissioner Michael
Danilack before the 61st Annual Midyear Meeting of the
Tax Executive Institute
During the Tax Executives Institute’s 61st Midyear Conference in Washington, D.C.,
IRS Deputy Commissioner Michael Danilack announced that
the IRS will soon name a new director for transfer
pricing, and will initiate a new transfer pricing
practice in the near future. Danilack also noted that
the IRS will bring in more transfer pricing experts.
April 5, 2011
Ruling on Advance Pricing Agreements
The U.S. Customs and Border Protection addressed the acceptability and
documentation requirements of transfer pricing between
related parties, the significance of Advance Pricing
Agreements in determining customs value, and the
treatment of downward price adjustments made after
importation. The Agency reaffirmed that the burden
lies with the importer to establish that an APA
methodology is an appropriate basis for customs value,
as does the responsibility to provide sufficient
documentary evidence of compliance.
December 10, 2010
Prepared Remarks of IRS Commissioner Doug Shulman before
the 23rd Annual Institute on Current Issues in
Commissioner Shulman's remarks discuss the IRS' efforts over the past year to resolve
international corporate tax issues, such as transfer
pricing. Transfer pricing has been a focus of the IRS, with the
realignment of the international resources in the Large
Business & International operating division; and the
launch of a Transfer Pricing Pilot program, which
identified a number of cases of potentially broad
impact, and dedicated resources to the development of
such cases. The Commissioner also singled out the
migration of valuable intangibles through cost sharing
arrangements as a controversial issue. The IRS
aims to pick the right issues and taxpayers, and to
quickly get to the core of the facts and the law and
resolve the issues.
December 9, 2010
Memorandum by Office of Chief Counsel of the IRS
Discusses Treatment of Difference between a Taxpayer’s
Valuation for Customs Law Purposes and for Income Tax
The IRS Office of Chief Counsel concluded that the difference between valuations for customs
purposes and for income tax purposes—resulting from a
correct application of the “first sale” rule—does not
violate IRC section 1059A when this difference qualifies
under an exception provided by Reg. section 1.1059A-1(c)(2)(iv).
October 29, 2010
Transfer Pricing Sections of the Department of
Treasury's General Explanations of the Administration's
Fiscal Year 2011 Revenue Proposals
Controversy often arises concerning the value of intangible property transferred
between related persons and the scope of the intangible
property subject to Sections 482 and 367(d). The
proposal aims to clarify the definition of intangible
property to include workforce in place, goodwill, and
going concern value. The proposal also would
clarify that where multiple intangible properties are
transferred, the Commissioner may value the intangible
properties on an aggregate basis where that achieves a
more reliable result. In addition, the proposal
would clarify that the Commissioner may value intangible
property taking into consideration the prices or profits
that the controlled taxpayer could have realized by
choosing a realistic alternative to the controlled
transaction undertaken. Lastly, under the proposal, if a U.S. person transfers an
intangible asset from the United States to a related
controlled foreign corporation that is subject to a low
foreign effective tax rate in circumstances that
evidence excessive income shifting, then an amount equal
to the excessive return would be treated as subpart F
income in a separate foreign tax credit limitation basket.