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TRANSFER PRICING RESOURCES FOR THE UNITED STATES

SECTION 482 USER GUIDE
SECTION 6662 USER GUIDE
COST SHARING USER GUIDE
INDIVIDUAL STATE RESOURCES
REGULATORY DEVELOPMENTS
OTHER NEW DEVELOPMENTS
IRS PRACTICE UNITS
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REGULATORY DEVELOPMENTS

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 that 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

The IRS has a page on its website devoted to Country-by-Country Reporting Guidance. It contains the items described above as well as other resources, such as a section for Frequently Asked Questions.

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.

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

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.

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 27, 2013

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 arrangements.

Final Services Regulations - Effective July 31, 2009

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 SCM.



OTHER NEW DEVELOPMENTS

Report Concerning Advance Pricing Agreements in 2016

On March 27, 2017 the Secretary of the Treasury issued its annual report concerning advance pricing agreements (APAs) and the Advance Pricing and Mutual Agreement Program for calendar year 2016. The report includes information on the structure, composition, and operation of the program, presents statistical data, and includes general descriptions of various elements of the APAs executed in 2016, including the types of transactions covered, the transfer pricing methods used, and completion time.
March 2017

IRS Compliance Campaigns

The Large Business and International Division of the IRS has selected 13 compliance campaigns. Included is (i) a Related Party Transactions campaign, and (ii) an Inbound Distributor campaign. For the former, the IRS wants to "determine the level of compliance in related party transactions of taxpayers in the mid-market segment." For the latter, the IRS notes that "U.S. distributors of goods sourced from foreign-related parties have incurred losses or small profits on U.S. returns, which are not commensurate with the functions performed and risks assumed."

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.
January 2017

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

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

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 Customs purposes.
December 28, 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 tax reserve.
July 19, 2011

Customs 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

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


IRS PRACTICE UNITS

IRS Practice Units provide IRS staff with explanations of general international tax concepts as well as information about a specific type of transaction. Practice Units are not official pronouncements of law or directives and cannot be used, cited or relied upon as such. Practice Units provide a general discussion of a concept, process or transaction and are a means for collaborating and sharing knowledge among IRS employees. Practice Units may not contain a comprehensive discussion of all pertinent issues, law or the IRS's interpretation of current law. Practice Units do not limit an IRS examiner’s ability to use other approaches when examining issues. Below is a partial list of Practice Units that are particularly relevant to Transfer Pricing.

    ISI/T/06_05-02 - High Value Services: Technical & Marketing Fees – Inbound (September 2017)
    FCU/c/18_02_01-07 - Sourcing of Exchange Gains or Losses in Currency Transactions (January 2017)
    FCU/c/18_02_01-06 - Exchange Gains/Losses on Payables & Receivables Denominated in a Nonfunctional Currency (January 2017)
    ISO_t_01_01_01-04 - IRC 367(d) Transactions in Conjunction with Cost Sharing Arrangements (CSA) (January 2017)
    ISIC_06_04 - Comparison of Arm's Length Std with Other Valuation Approaches - Inbound (September 2016)
    ISOC_01_03 - Comparison of Arm's Length Standard with Other Valuation Approaches Outbound (September 2016)
    ISOCUP_1_10_01 - Corporate Inversions - Overview of Major Issues (July 2016)
    ISI9422_07_08 - Inbound Resale Price Method Routine Distributor (March 2016)
    ISO9411_07_02 - Outbound Services by U.S. Companies to CFCs (March 2016)
    ISOPUOP_1_7_02- Review of Transfer Pricing Documentation by Outbound Taxpayers (March 2016)
    ISOPUOP_1_7_04 - Residual Profit Split Method – Outbound (March 2016)
    ISO9411_01_06 - Change in Participation in a Cost Sharing Arrangement - Controlled Transfer of Interests and Capability Variation (February 2016)
    ISI9422_08_01 - Intercompany Interest Rates Under the Situs Rule of IRC Section 482 (February 2016)
    ISO9411_01_02 - Pricing of Platform Contribution Transaction in Cost Sharing Arrangements (February 2016)
    IGA9560_11_06 - Calculating the Net Adjustment Penalty for a Substantial Valuation Misstatement (February 2016)
    ISIPUOP_6_9_04 - Residual Profit Split Method - Inbound (February 2016)
    ISO9411_02_03 - License of Intangible Property from U.S. Parent to a Foreign Subsidiary (November 2015)
    ISO9411_02_04 - Accounting for Intangibles and Services Associated with the Sale of Tangible Property - Outbound (September 2015)
    ISOPUOV_1_01 - Comparability Analysis for Tangible Goods Transactions - Outbound (December 2014)
    ISO9411_05_01 - Sale of Tangible Goods from a CFC to a USP - CUP Method (December 2014)
    ISO9411_01_03 - Cost Sharing Arrangements vs Licensing Alternative (December 2014)
    ISO9411_01_01 - Pricing of Platform Contribution Transaction in Cost Sharing Arrangements - Initial Transaction (December 2014)
    ISIPUOV_6_10 - Review of Transfer Pricing Documentation by Inbound Taxpayers (December 2014)
    ISIPUOV_6_01 - Comparability Analysis for Tangible Goods Transactions - Inbound (December 2014)
    ISI9422_09_05 - Services Cost Method Inbound Services (December 2014)
    ISI9422_09_04 - Best Method Determination for an Inbound Distributor (December 2014)
    ISI9422_09_01 - Foreign Shareholder Activities and Duplicative Services (December 2014)
    ISI9422_07_05 - Purchase of Tangible Goods from a Foreign Parent - CUP Method (December 2014)
    ISI9422_04_01 - License of Foreign Owned Intangible Property to U.S. Entity (December 2014)

For professional transfer pricing consulting services, contact Economic Consulting Services at 202-466-7720.
Or email jerrie.mirga@economic-consulting.com