Worldwide transfer pricing reference guide 2014

United States
Taxing authority and tax law
Taxing authority: Internal Revenue Service (IRS) is responsible for ensuring that taxpayers meet the requirements of the law.
Tax law: Internal Revenue Code (IRC) §§482, 6038A, 6038C, 6662 and 7701(o); regulations adopted pursuant to those sections.
Relevant regulations and rulings
• Treasury Regulations (Treas. Regs.) §§1.482, 1.6662, 1.6038A, 1.6038C
• Revenue Procedure (Rev. Proc.) 99–32, Rev. Proc. 2006–9, Rev. Proc. 2006–54, and Rev. Proc. 2007–13
• On 22 November 2013, the IRS issued Notice 2013–78, which contains a proposed revenue procedure that would update and supersede
Revenue Procedure 2006–54,2006–2C.B 1035, providing guidance for requesting assistance from the US competent authority acting
through the Advance Pricing and Mutual Agreement program (APMA). The intent of the proposed revenue procedure is to substantially
improve clarity, readability, and organization of Revenue Procedure 2006–54. The IRS is seeking taxpayer comments by 10 March 2014.
It is understood that the final revenue procedure will be issued later in the year 2014
• On 22 November 2013, the IRS issued Notice 2013–79, which contains a proposed revenue procedure that would update and supersede
Revenue Procedures 2006–9 and 2008–31. The goal of the revenue procedure is to provide guidance and instruction on APAs, as well
as provide guidance and instruction on the IRS’s administration of APAs. The IRS is seeking taxpayer comments by 10 March 2014.
It is understood that the final revenue procedure will be issued later in the year 2014
• In April 2007, Cost Sharing Arrangement (CSA) buy-ins was designated by the IRS as a “Tier I” issue, and thus susceptible to intensified
audit scrutiny. While the IRS’s tiering process was officially eliminated in August 2012, it was replaced by knowledge networks known
as Issue Practice Groups (IPGs) for domestic issues and International Practice Networks (IPNs) for international issues. CSA buy-ins are
expected to continue to be an issue upon which the IPNs will focus
• A Coordinated Issue Paper (CIP) was released on 27 September 2007, providing internal IRS guidance for examiners in developing CSA
exam positions. However, the CIP was withdrawn on 26 June 2012
The CSA regulations were issued in final form on 16 December 2011. Additional temporary and proposed regulations were published on
19 December 2011. The final CSA regulations closely follow the temporary CSA regulations that were issued in January 2009, and the
additional temporary and proposed regulations make only minor changes to the final regulations. The final regulations provide the IRS
with the discretion to make periodic adjustments and formalize other proposed requirements for compliance.
Finalized services regulations were issued on 31 July 2009. These regulations provided for only minor modification of the temporary
regulations that had been in effect as of 1 January 2007. The new services regulations explicitly require stock-based compensation to
be considered as part of total costs. Guidance regarding the list of ”specified covered services” as defined in Treas. Reg. 1.482–9(b)(3)(i)
can be found in Rev. Proc. 2007–13.
OECD Guidelines treatment
The IRS considers its transfer pricing laws and regulations to be wholly consistent with OECD Guidelines. For domestic purposes, the
OECD Guidelines do not provide support, and would not be directly relevant, to the application of any pricing methods. However, if
taxpayers pursue competent authority relief from double taxation or a bilateral APA, the OECD Guidelines are relevant and may be used
to demonstrate compliance with international principles.
Priorities/pricing methods
For tangible goods, the IRS accepts the CUP, Resale Price, Cost Plus, CPM, Profit Split, and unspecified methods. For intangible goods,
the IRS accepts the CUT, CPM, Profit Split, and unspecified methods.
For services, the IRS accepts the Services Cost, Comparable Uncontrolled Services Price, Gross Services Margin, Cost of Services Plus,
CPM, Profit Split, and unspecified methods. For CSAs buy-ins, the IRS accepts the CUT, Income, Acquisition Price, Market Capitalization,
Residual Profit Split and unspecified methods.
The regulations provide a “best method rule” for determining the appropriate method to be applied by the taxpayer for each
intercompany transaction.
Worldwide transfer pricing reference guide
310