Services
Final and temporary regulations issued in August 2006 that provide guidance regarding the treatment of controlled services transactions under section 482 and the allocation of income from intangibles, in particular with respect to contributions by a controlled party to the value of an intangible owned by another controlled party. These final and temporary 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 Notice 2007-5 clarifies and modifies certain provisions of the new Services regulations.  In particular, it partially modifies the effective date such that the regulations apply to taxable years after December 31, 2007, for all provisions related to the Services Cost Method ("SCM").

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.

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.

Cost Sharing
Proposed regulations issued in August 2005 that provide guidance regarding methods under section 482 to determine taxable income in connection with a cost sharing arrangement. These proposed regulations potentially affect controlled taxpayers within the meaning of section 482 that enter into cost sharing arrangements.

US Transfer Pricing News and Other Resources

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

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