Transfer Pricing Matters

Transfer pricing regulations require the arm’s length standard to be applied to “controlled transactions” following the best method rule. A related documentation standard also applies. Generally, the Section 482 “best method” and relevant O.E.C.D. transfer pricing methods can be applied to establish arm’s length pricing in a manner acceptable to the relevant tax authorities. However, U.S. and O.E.C.D. approaches do not always produce consistent outcomes or documentation. 

Today, the I.R.S. and other O.E.C.D./G-20 B.E.P.S. Project participants identify transfer pricing to be among the most important areas for coordinated scrutiny by tax authorities. 

The Firm works with clients to properly identify controlled transactions, achieve the best alignment between U.S. and foreign approaches, select and rigorously apply transfer pricing methods, meet worldwide documentation requirements, and integrate transfer pricing and business practices.

Sample Representations

  • We advised an S.E.C. registrant with respect to the proper transfer price for products to be purchased by the U.S. parent from its European subsidiary for resale to a customer in the U.S. We employed the resale price method, with gross margin as the appropriate profit level indicator, taking into account the value contributed by the European subsidiary’s supply chain management function.

  • We advised a U.S. subsidiary in the plastics industry concerning royalties paid to a foreign group company, the price of purchased finished goods, and the application of the arm’s length standard to its several business segments.

  • We advised a pharmaceutical supplier to a U.S. joint venture partner of the application of transfer pricing principles in a withholding tax dispute.

  • We advised a U.S. subsidiary that supplies specialized machinery on its distribution profit determination and assisted in meeting its documentation requirement.

  • We assisted a litigation team to obtain partial summary judgment on damages in a landmark case using our transfer pricing economics expertise and strategic experience in transfer pricing controversy.

  • We advised a U.S. subsidiary in the dairy distribution business with respect to its ongoing royalty payments for manufacturing processes made available by its foreign parent. We also addressed ongoing sales of inventory from the parent to the U.S. subsidiary for distribution to the U.S. market. Our transfer pricing analyses for the client have been examined on a year-to-year basis by the I.R.S. with no change in the pricing.

  • We advised a U.S. manufacturer of wiring devices with respect to sales of inventory to its Canadian distributor. We successfully addressed foreign currency issues and made appropriate adjustments to neutralize the effect of foreign currency gains on the profitability of the Canadian company.