Services
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.

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.
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.

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Proposed Regulations

Global Dealing
Proposed rules issued in 1998 on the allocation and sourcing of income and deductions among taxpayers engaged in a global dealing operation. These proposed rules, which were released March 3, 1998, would apply to global trading operations.
 

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US Transfer Pricing News and Other Resources

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 program.
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 Customs purposes.
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 future years.
December 15, 2011

Western Union/First Data Settles $2 Billion Transfer Pricing Litigation
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 IRS 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 Post-Importation Adjustments
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 tax reserve.
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

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

Prepared Remarks of IRS Commissioner Doug Shulman before the 23rd Annual Institute on Current Issues in International Taxation
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

IRS Realigns and Renames Large Business Division, Enhances Focus on International Tax Administration
IRS officials announced the realignment of the Large and Mid-Size Business (LMSB) division to create a more centralized organization dedicated to improving international tax compliance. As part of the organizational shift, the name of the IRS’s large corporate unit will change on Oct. 1 to the Large Business and International division (LB&I). The new LB&I organization will add about 875 employees to the existing staff of nearly 600. Most of the additional examiners, economists and technical staff are current employees who specialize on international issues within other parts of LMSB. The new international unit will include a transfer pricing director, who will continue piloting the new transfer pricing practice, and a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing.
August 4, 2010

U.S. Joint Committee on Taxation Report to House Committee on Ways and Means on Possible Income Shifting and Transfer Pricing
The House Committee on Ways and Means scheduled a public hearing on transfer pricing issues on July 22, 2010. The linked document includes a background discussion of business restructuring, a description of past and present law relevant to the studies, and six case studies of U.S.-based multinational corporations and how the business structure of those corporations interacts with the Internal Revenue Code to determine the corporation’s U.S. tax liability.
July 22, 2010

IRS Commissioner Doug Shulman's Remarks Before the OECD/BIAC
Commissioner Shulman addresses leaders in the international tax and business community, touching on the topic of joint audits with other countries of multinational companies.
June 8, 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.
February 2010

IRS Commissioner Doug Shulman's Remarks Before the New York State Bar Association
In prepared remarks to the New York State Bar Association's Taxation Section Annual Meeting in New York City, Commissioner Shulman stated that the IRS is trying to work smarter in the area of transfer pricing by utilizing agents with industry specific and transfer pricing expertise to match up with corporate taxpayers and to fully develop the issues, discuss them with taxpayers and their representatives, and ultimately resolve the issues for the large number of taxpayers with transfer pricing issues.  To address these issues, the Commissioner again discussed the formation of a Transfer Pricing Practice within the IRS' Large and Mid-Size Business operating division so that the IRS can strategically and systematically administer transfer pricing issues. This group will consist of experts in the transfer pricing area that the IRS can use to coordinate its handling of the most important issues to taxpayers, identify emerging issues and trends, and provide consistency in outcomes in transfer pricing cases.
January 26, 2010

IRS Commissioner Doug Shulman's Remarks Before the 22nd Annual George Washington University International Tax Conference
Commissioner Shulman spoke at the 22nd Annual George Washington University International Tax Conference, and said that he would establish a transfer pricing practice within the Large and Mid-Size Business division to identify and manage important issues and trends and offer consistent treatment.
December 10, 2009

Collecting Taxes During An Economic Crisis: Challenges and Policy Options
The International Monetary Fund recommends that governments strengthen transfer pricing rules to better address cross-border compliance risks.
July 14, 2009

IRS Commissioner Doug Shulman's Remarks Before the OECD
Commissioner Shulman spoke to the OECD regarding international tax issues and improving enforcement resources on such issues.  The Commissioner notes that the IRS will continue to focus on particular areas of interest, including transfer pricing, financial instruments, hybrid structures, and withholding taxes.  The Commissioner also noted that part of President Obama's budget would fund the IRS to hire nearly 800 new employees devoted specifically to international enforcements, such as agents, economists, lawyers and specialists.  This would increase the IRS' ability to crack down on offshore tax avoidance and evasion, and also give the IRS more resources to devote to complex international corporate tax issues such as transfer pricing and financial products.
June 2, 2009

US Chip Maker, Xilinx, Loses Appeals Court Decision, Wide Transfer Pricing Implications for U.S. Multinationals
In a transfer pricing case related to cost-sharing, the U.S. Court of Appeals for the Ninth Circuit ruled against Xilinx, overturning an earlier ruling that went against the IRS.  Xilinx allocated a portion of its R&D costs to an Irish subsidiary, but kept the entire value of the tax deductions related to the stock options granted to the company’s research employees in the U.S.  None of the deductions were allocated to the subsidiary in Ireland.  As a result of the ruling, the IRS could have broader powers in adjusting corporate tax returns.
May 27, 2009

General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals
President Obama's administration estimated that its proposals would raise about $210 billion over ten years.  The administration stated its intention to hire 800 new IRS employees to be hired as international examiners, financial products specialists, and economists.  Transfer pricing-related provisions detailed in the linked green paper would be effective for taxable years beginning after December 31, 2010.  The provisions define workplace in place, goodwill, and going concern as intangibles, which would prevent them from being transferred tax free; directs the IRS to value intercompany transfers of intangible property "at its highest and best use, as it would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts"; clarifies that the IRS can value a transfer of multiple intangible properties in the aggregate to achieve "a more reliable result"; and gives the IRS more time to look at taxpayer information from cross-border transactions and foreign entities to six years (currently at three years).  
May 11, 2009

Announcement and Report Concerning Advance Pricing Agreements in 2008
Provides a report describing the experience, structure, and activities of the Advance Pricing Agreements Program during calendar year 2008.
April 13, 2009

Preparer Penalty Requires Informing Clients of Transfer Pricing Rules, Section 6662 Penalty
Final rules on tax preparer penalties under Section 6694 in effect require transfer pricing practitioners to notify their clients of the transfer pricing penalty rules and let them know the lone way to prevent penalties is to prepare contemporaneous transfer pricing documentation and provide it to the Internal Revenue Service within 30 days of a request.
December 22, 2008

Memorandum of Understanding between the U.S. and Germany
This memorandum spells out conditions for panelists tasked with arbitrating double tax disputes under the current tax treaty, including that current government employees or those who had government positions within the past two years  could not be appointed to the panels.
December 16, 2008

Remarks of Commissioner Douglas Shulman before the 21st Annual George Washington University International Tax Conference
Commissioner Shulman identifies transfer pricing as one of three areas in the corporate arena where the IRS is starting to make progress in its international efforts to reign in those corporations who are "pushing the envelope" and to help those corporation that are complying with the regulations.  Cost sharing, contract manufacturing, and global dealing were three specific areas discussed by the Commissioner.
December 8, 2008

U.S. and Liechtenstein Agreement on Tax Cooperation and the Exchange of Information Relating to Taxes
The U.S. and Liechtenstein signed an agreement to allow for the exchange of information on tax matters between the two countries and also agreed to explore entering into additional agreements to exchange transfer pricing information.
December 8, 2008

IRS May Tighten Rules That Send Profits Abroad - NY Times Article
This article in the NY Times by Lynnley Browning discusses the IRS' plans to increase its scrutiny of corporations using tactics by multinational corporations with American operations to lower their tax bills.
October 30, 2008

IRS Memorandum on Interaction of Sections 965 and 482 Conforming Adjustments
Addresses whether an account receivable established by an election to apply Rev. Proc. 99-32 constitutes related party indebtedness under I.R.C. Section 965(b)(3).  See LMSB-4-0408-021 for a related alert to IRS agents on this issue. 
September 12, 2008

Protocol Amending 1980 Tax Convention with Canada
The Protocol would amend the existing tax treaty with Canada in order to eliminate withholding taxes on cross-border interest payments, coordinate the tax treatment of contributions to, and other benefits of, pension funds for cross-border workers, and provide for mandatory arbitration of certain cases before the competent authorities of both countries.
September 11, 2008

IRS Releases Updated Drafts of Corporate and Partnership Tax Forms
These draft changes would require greater reporting of the ownership and relationships that make up complex enterprise business structures, including cost-sharing arrangements, as part of a continuing focus on transparency and identifying high-risk taxpayers and groups.
July 30, 2008

Government Accountability Office Study - U.S. Multinational Corporations: Effective Tax Rates Are Correlated With Where Income Is Reported
Report notes that Germany, Japan, and the United Kingdom are all countries with high tax rates and are the leading foreign locations of U.S. businesses by all measures except income.  The report adds that most of the countries with relatively low effective tax rates have income shares significantly larger than their shares of the business measures, such as physical assets, compensation, and employment.
August 12, 2008

Government Accountability Office Study - Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations - 1998-2005
Foreign controlled corporations ("FCDCs") reported lower tax liabilities than U.S. controlled corporations ("USCCs) by most measures shown in the report.
July 2008

Income Shifting from Transfer Pricing: Further Evidence from Tax Return Data
U.S. Treasury report that demonstrates that an analysis of data from 1996, 2000, and 2002 supports concerns about non-arm's length income shifting under current transfer pricing rules, including those on cost-sharing.
July 2008

IRS Expands Issues to be Covered Under APA Program - Rev. Proc. 2008-31
This revenue procedure modifies Rev. Proc. 2006-9, 2006-1 C.B. 278, which informs taxpayers how to secure an APA from the APA Program within the Office of Associate Chief Counsel (International). This revenue procedure also modifies Rev. Proc. 2006-9 to describe further the types of issues that may be resolved in the APA process.
June 9, 2008

Potential Issue Related to Code Section 965 Foreign Earnings Identified by IRS
The IRS’ Large and Mid-Size Business Division informed agents of a possible compliance concern relating to the repatriation of foreign earnings under Section 965, saying an adjustment is needed under Section 965(b)(3) when a taxpayer chooses to apply Rev. Proc. 99-32, 1999-2 C.B. 296, to create an accounts receivable for a Section 482 adjustment.
April 21, 2008

Announcement and Report Concerning Advance Pricing Agreements
Provides the number of APAs executed in 2007, and the number of requests pending, among other statistics. 
April 14, 2008

IRS Industry Directive #2 on Transfer of Intangibles Offshore / Section 482 Cost Sharing Buy-in Payment Issue
This Industry Director Directive ("IDD") provides additional guidance to the field regarding the examination of Tier 1 IRC Sec. 482 Cost Sharing Arrangement ("CSA") Buy-In issues regarding the transfer of intangibles offshore.  Field agents are instructed that when a CSA buy-in issue is to be examined, the teams must apply the appropriate LMSB risk analysis procedures in accordance with the applicable transfer pricing guidance, including Internal Revenue Manual - 4.46.3 - Planning the Examination (Cont.2), Exhibit 4.46.3-5 Transfer Pricing Compliance Process.  The risk analysis should also address the application of the CIP - Sec. 482 CSA Buy-In Adjustments issued on September 27, 2007 (CIP summarized below).  This is the second industry directive on the topic.  Refer to the April 5, 2007 Directive #1 for further guidance (also summarized below). 
March 21, 2008

IRS Coordinated Issue Paper on Cost Sharing Stock Based Compensation
IRS regulations state that compensatory stock options and other stock-based compensation should be included as a cost that must be borne proportionately between the companies engaged in a cost sharing agreement.  However, in Xilinx v. Commissioner, the Tax Court held that requiring such stock-based compensation to be a shared cost was inappropriate since uncontrolled parties would not share such a cost in an arms-length arrangement.  The IRS has appealed the case to the 9th Circuit Court of Appeals, and has indicated that it will continue to insist that stock-based compensation be a shared cost in a cost sharing arrangement. 
March 20, 2008

Treasury Issues Report on International Tax Issues
Report was prepared in response to sections 424 and 806 of the American Jobs Creation Act of 2004 (“AJCA”). In AJCA, Congress directed the Secretary of the Treasury to conduct studies regarding (1) the earnings stripping rules, including a study of the effectiveness of these rules in preventing the shifting of income outside the United States; (2) the effectiveness of the transfer pricing rules of section 482, with an emphasis on transactions involving intangible property; (3) income tax treaties to which the United States is a party, with a view toward identifying any inappropriate reductions in withholding tax or opportunities for abuse that may exist; and (4) the impact of AJCA’s corporate expatriation provisions on inversion transactions (i.e., where a U.S. parent corporation of a U.S. multinational group is replaced with a new foreign parent corporation).
November 28, 2007

Prepared Remarks of Linda Stiff - Acting Commissioner of Internal Revenue Before Tax Executives Institute
October 22, 2007

IRS Coordinated Issue Paper on Cost Sharing Arrangements, Buy-In Adjustments
This coordinated issue paper ("CIP") provides guidance to IRS personnel concerning methods that may be applied to evaluate the arm's length charge for pre-existing intangible property that is made available, for purposes of research, to a qualified cost sharing arrangement ("CSA").  In this context, the payment in question is generally referred to as a "buy-in payment."  This CIP refers to the intangible asset(s) made available to the CSA for research as either the "buy-in intangible" or the "platform intangible."
September 27, 2007

IRS Memorandum on Treatment of Certain Adjustments in Determining Net Section 482 Transfer Price Adjustment
July 20, 2007

Testimony of Treasury International Tax Counsel John Harrington Before the Senate Committee on Foreign Relations on Pending Income Tax Agreements
The International Tax Counsel appeared at the hearing to recommend favorable action on tax agreements with Finland, Germany, Belgium and Denmark that are pending before the Senate Foreign Relations Committee.
July 17, 2007

Explanation of Income Tax Treaty between the United States and Belgium
This is an explanation prepared by the staff of the Joint Committee on Taxation, describing the proposed income tax treaty between the United States and Belgium as supplemented by a protocol (the “proposed protocol”). The proposed treaty was signed on November 27, 2006. The Senate Committee on Foreign Relations scheduled a public hearing on the proposed treaty for July 17, 2007.
July 13, 2007

FIN 48 and Tax Accrual Work Paper - Policy Update - LMSB Commissioner Memorandum
The purpose of this memorandum is to provide information regarding the impact on LMSB resulting from a development in the financial accounting environment.   FIN 48 must be adopted and implemented in financial statements for years beginning after December 15, 2006.  Therefore, many Quarterly Statements (10-Qs) issued by public reporting companies for the period ended March 31, 2007 will reflect information not previously required.  This memorandum communicates LMSB's current policy. 
May 10, 2007

FIN 48 Implications - LMSB Field Examiners' Guide
May 2007

IRS-LMSB FIN 48 Training Materials

Industry Director Directive #1 on Transfer of Intangibles Offshore/ §482 Cost Sharing Buy-in Payment
This memorandum provides the Field direction on the Tier I Issue, Transfer of Intangibles Offshore / § 482 Cost Sharing Buy-in Payment.  The directive provides general guidance on the issue, recommends audit techniques and the use of the "Checklist for Cost Sharing Arrangements" for the development of cost sharing issues, describes published legal guidance, and identifies technical staff available to assist the field.  
April 5, 2007

Determining the Acceptability of Transaction Value for Related Party Transactions
April 2007

FIN 48 and Tax Accrual Workpapers
This memorandum addresses the issue of whether documents produced by the taxpayer and/or its auditors to substantiate the taxpayer’s uncertain tax positions in compliance with FIN 48 are included within the Service’s interpretation of Tax Accrual Workpapers (TAW) as provided in IRM Section 4.10.20.2 (2).
March 22, 2007

IRS Memorandum on Intangible Transfers and whether Taxpayers May Invoke Section 482
This memorandum addresses taxpayer asserted rights to use section 482, in particular to invoke the commensurate with income standard, to reduce the charge for transfers of intangible property.
March 15, 2007

IRS Announces First Bilateral APA Is Concluded Between the United States and China

Written testimony by Mark Everson, Commissioner of the IRS, to Congress
August 1, 2006

Pacific Association of Tax Administrators ("PATA") Transfer Pricing Documentation Package

Transfer Pricing Compliance Directive
January 22, 2003

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