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Whether developing strategies to minimize exposure to transfer pricing adjustments and tax penalties, providing the economic framework for advanced planning (including Advance Pricing Agreements), or providing litigation support, ECS professionals have a tradition of devising innovative solutions to transfer pricing problems.

ECS has a knowledgeable staff of experienced economists and financial analysts. The significant strategic advantages offered to ECS clients include:

  • A focus on economics. ECS is an economic consulting firm that fully utilizes the economic, financial, and statistical expertise of its senior staff. It does not rely on a rote adherence to checklists.

  • A transaction-based approach. ECS examines the unique attributes of each client’s intercompany transactions and selects the best transfer pricing method for the circumstances. In keeping with the preferences of U.S. and foreign tax authorities, ECS attempts to find third-party transactions that can be used to support intercompany prices directly. ECS uses profit-based approaches when appropriate third-party transactional data are unavailable or to test the reasonableness of a transactional approach.

  • A customized product. ECS carefully tailors its work to its clients’ unique circumstances both in terms of the methodologies applied and in the preparation and format of the final report.

  • Experience in litigation. ECS understands the level of detail and rigor required for cases that may be reviewed by the courts. ECS experts have successfully testified in cases before the U.S. Tax Court, and ECS has worked on many projects in various stages of litigation.

  • Transactional data processing capabilities. The technical expertise and real-world experience that have made ECS a leader in antidumping and countervailing duty cases are also applicable in tax cases involving product-level data, such as comparable uncontrolled price ("CUP") documentation of arm’s length pricing and transaction-by-transaction studies.


    As governments pay more attention to transfer prices, they demand more documentation from taxpayers. Under the IRC Section 6662 regulations, the IRS can impose 20 percent or 40 percent penalties if companies have substantial adjustments to their transfer prices, and lack adequate contemporaneous documentation of a reasonable effort to establish arm’s length prices. Other countries have similar documentation requirements and allow for the imposition of penalties. The OECD's BEPS initiative has also given rise to a renewed focus on transfer pricing documentation.

    U.S. Documentation

    ECS’ documentation reports for U.S. clients are designed to meet the requirements of Section 6662, bearing in mind that they may also be relevant for one or more foreign jurisdictions. ECS’ documentation reports range from providing relatively basic documentation for simple inbound or outbound sales to complex analyses documenting royalty rates, buy-ins for cost sharing agreements, and other intangible transactions.

  • ECS analyzed the royalty rates paid to a European parent company by U.S. manufacturing entities for use of the parent’s trademarks and technology. To demonstrate the reasonableness of the rates, ECS examined the prevailing rates in the industry and compared the profitability of the U.S. operations with the profitability of a sample of independent U.S. companies in the industry. ECS’ analysis provided the basis for the successful resolution of this issue.

  • A foreign-owned U.S. distributor with a history of contentious IRS examinations used its initial transfer pricing documentation report by a senior ECS professional to establish a cooperative dialogue that led the IRS to close the examination without proposing any change in transfer prices.

  • In one of the first IRS examinations of a year covered by a Section 6662 report, the senior ECS professional responsible for the report persuaded the IRS field team to accept the report's definition of the scope of the controlled transactions, selection of the best method, choice of comparables, and adjustments to those comparables, leaving only a small adjustment to the client's allocation of expenses between the controlled and uncontrolled transactions.
  • Non-U.S. Documentation

    Reports that are intended to be given to non-U.S. governments are designed to take account of the relevant governments’ preferences in methodology and terminology. In preparing a documentation report, ECS chooses and applies the most appropriate method based on a thorough analysis of the intercompany transactions and available uncontrolled comparables, while remaining constantly mindful of the client’s budget and the likelihood that the documentation will be subject to government scrutiny. ECS has provided documentation for use in several countries/regions, including Mexico, Canada, Europe, India and Japan.

  • A multinational client wanted to implement a single approach that would be applied consistently on a worldwide basis. ECS prepared an analysis documenting the intangible property and risk-taking assumptions adopted by the client, and developed an approach to calculating resale gross margins that varied by country and product line. This analysis has provided the basis for the client’s successful responses to Customs and tax audits for more than a decade.

  • An ECS documentation report prepared for non-U.S. distribution subsidiaries of a U.S. multinational, using the OECD approved Transactional Net Margin Method ("TNMM"), was accepted by Japan’s National Tax Administration as the appropriate standard for testing the arm’s length nature of transfer prices paid by the company’s Japanese subsidiary.
  • Advance Pricing Arrangements

    Through an Advance Pricing Agreement (APA), companies can establish the arm’s length nature of their intercompany prices to avoid future disputes. Sometimes the APA process can also be used to resolve disputes over past years efficiently and economically. ECS’ reports provide the economic analysis necessary to demonstrate that intercompany prices are consistent with arm’s length expectations, a critical factor in obtaining an APA.

  • ECS provided the economic analysis used in reaching a bilateral APA for its client’s sales between the United States and Canada. ECS’ analysis demonstrated that the prices paid by the Canadian entity to the affiliated U.S. supplier were consistent with those paid in third party transactions.

  • ECS provided the economic analysis of third party license and supply agreements that became the basis for an APA allowing foreign affiliates to use technology developed by the U.S. parent company.


    ECS’ economic studies have been used in all stages of U.S. and non-U.S. transfer pricing examinations, by both taxpayers and tax authorities. ECS studies describing the basis for the taxpayer’s transfer prices have been used to reach agreement with the IRS or other tax authorities at the field examination or appeals levels, and have been used in successful competent authority negotiations.

  • ECS provided the economic analysis used by a non-U.S. tax authority to audit and reach a settlement with a pharmaceutical company that carried out secondary manufacturing and distribution based on active ingredients purchased from international affiliates. As patent and trademark rights were owned offshore, the royalty rates to be paid by the local company were also at issue. ECS used a resale price or "work back" approach to estimate the value of the tangible and intangible property involved. Additional analyses, including profit splits and comparisons to the profits earned by comparable companies, were used to verify results and played a key role in the settlement process.

  • When a non-U.S. tax authority questioned why a company that had acquired its U.S. licensor to save it from bankruptcy was still paying a royalty, the economic report prepared by a senior ECS professional showed that the royalty was appropriate because the licensed intangible was uniquely valuable in the non-U.S. economy, the U.S. company was still creating enhancements to the value of the intangible, and the royalty was commensurate with royalties paid by other non-U.S. licensees. The non-U.S. authority accepted the royalty, as paid.
  • ECS’ experience in working with U.S. and other tax authorities provides practical insight into the way tax rules are actually applied in different countries, and strengthens the firm’s reputation for unbiased analysis.


    The Comparable Profits Method (CPM) is not always the best method under the U.S. regulations, or the method most likely to be accepted by other governments. However, for many companies facing the need for transfer pricing documentation and concerned about the cost, a basic CPM comparison may be sufficient to demonstrate that prices are consistent with the arm’s length standard, or as a first-step risk assessment.

    Benchmark CPM is a proprietary service offered by ECS. It provides a standardized set of profit level indicators (PLIs) for use in CPM analyses. In providing this service, ECS uses its specialized expertise in data development to select a sample of companies based on financial and descriptive information provided by its client. Functional analyses, and the evaluation of alternative approaches, are the responsibility of the client. Benchmark CPM also can be used to update samples from previous analyses, to evaluate the impact of different PLIs and working capital adjustments on samples developed by the IRS, and to examine the sensitivity of results to different screening criteria.


    ECS has prepared reports that determine an appropriate basis for the parties to a Cost Sharing Arrangement to share future R&D costs. Where pre-existing intagibles are being contributed to the arrangement, a valuation of such intangibles is also needed in order to determine the buy-in payment(s) to be made.

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