U.S. INTERCOMPANY TRANSFER PRICING REGULATIONS
Note: This user guide is intended to help clarify the concepts
and identify issues in the application of the
U.S. regulations. It does not constitute legal
advice, and should not be relied on as such.
For professional transfer pricing consulting
services, contact Economic Consulting Services
at 202-466-7720.
A. Authority
Sec. 482 of the United States Internal Revenue Code, in its entirety, states:
"In any case of
two or more organizations, trades, or businesses
(whether or not incorporated, whether or not
organized in the United States, and whether or
not affiliated) owned or controlled directly or
indirectly by the same interests, the Secretary
may distribute, apportion, or allocate gross
income, deductions, credits, or allowances
between or among such organizations, trades, or
businesses, if he determines that such
distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes
or clearly to reflect the income of any of such
organizations, trades, or businesses. In the
case of any transfer (or license) of intangible
property (within the meaning of section
936(h)(3)(B)), the income with respect to such
transfer or license shall be commensurate with
the income attributable to the intangible."
The last sentence of the section, which was added to the
code by the Tax Reform Act of 1986, applies to
taxable years beginning after Dec. 31, 1986, but
only with respect to intangibles transferred
after Nov. 16, 1985, or licenses granted after
such date, or before such date with respect to
property not in existence or owned by the
taxpayer on such date, except that for purposes
of section 936(h)(5)(C) of this title, such
amendment applicable to taxable years beginning
after Dec. 31, 1986, without regard to when the
transfer or license was made.
B. Overview and Full Text of the Sec. 482
Regulations
The Sec. 482 regulations are generally effective for taxable
years beginning after October 6, 1994. The regulations interpreting and applying
Sec. 482 are organized as follows:
Table of Contents
Reg. Sec. 1.482-0
1. Procedural rules
Reg. Sec. 1.482-1
Rules which apply to all controlled transactions, including general descriptions of
the scope and purpose of the regulations, and of the arms length standard.
2. Determination of income in specific situations
Reg. Sec. 1.482-2
Rules covering (a) loans and advances, (b) services, and (c) use of tangible property.
3. Methods to determine taxable income in connection with a transfer of tangible property
Reg. Sec. 1.482-3
CUP, Resale Price, Cost Plus, and unspecified methods.
4. Methods to determine taxable income in connection with a
transfer of intangible property
Reg. Sec. 1.482-4
Definition of an intangible, CUT and unspecified methods,
periodic adjustments, and ownership rules.
5. Comparable Profits Method
Reg. Sec. 1.482-5
Rules for CPM, including tested party, adjustments, arms length range, profit level
indicators, and comparability and reliability
considerations. Note: Includes Section(c)(2)(iv), which states that it may be
appropriate to make adjustments for stock based
compensation.
6. Profit Split Method
Reg. Sec. 1.482-6
Comparable Profit Split and Residual Profit Split.
7. Sharing of Costs
Reg. Sec. 1.482-7
Rules for sharing the costs of the development
of intangibles, including requirements for a qualified cost sharing arrangement, treatment of
participants and non-participants, measurement of benefits, pre-existing intangibles. Note:
Includes Section (d)(2), which states that
operating expenses include stock-based compensation costs (effective for taxable years
beginning on or after August 26, 2003).(See also
ECS User Guide on Cost Sharing.)
8. Examples of the best method rule
Reg. Sec. 1.482-8
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