Transfer Pricing
Country Summary
United States

This document outlines the key aspects of transfer pricing regulations in the United States under Section 482 of the Internal Revenue Code (IRC). It highlights the authority of the Internal Revenue Service (IRS) to adjust income allocation between related parties to prevent tax evasion. The document discusses the arm’s length principle, Final Service Regulations, cost-sharing regulations, and transfer pricing documentation requirements. It also touches on tax havens, Advance Pricing Agreements (APAs), audit practices, and potential penalties.

Section 482 and IRS Authority

In the United States, Section 482 of the Internal Revenue Code grants the IRS the power to modify income allocation among related businesses. This authority aims to prevent tax evasion and ensure the accurate reflection of income.

Guidelines under Section 1.482

Section 1.482 of the U.S. Treasury Regulations provides detailed principles for applying Section 482. It establishes the arm’s length principle as the standard for determining taxable income.

Final Service Regulations and Cost-Sharing Rules

The document highlights Final Service Regulations (§1.482-9) issued in 2009 and cost-sharing regulations from 2011, offering guidance on intangible contributions and qualified cost-sharing arrangements.

References to OECD and Definition of Related Party

The United States aligns with OECD Transfer Pricing Guidelines. Related parties, under common control by the same interests, include entities with ownership or control over others, often involving voting power.

Transfer Pricing Documentation Requirements

The IRS mandates detailed documentation for regulated transactions with foreign organizations. This documentation must give an arm’s length analysis and be created before tax return submission.

Tax Havens and APAs

The U.S. designates tax havens based on low corporate income tax rates. Taxpayers can seek Advance Pricing Agreements (APAs) on a bilateral, multilateral, or unilateral basis to ensure transfer pricing correctness.

Audit Practices and Documentation

Transfer pricing audits are rigorous and often target large corporations. The IRS issued guidelines for these audits in 2018. Supporting documentation must be provided within 30 days of an Information Document Request.

Transfer Pricing Documentation Details

This section outlines the comprehensive documentation required, including business overviews, organizational structures, and details on transfer pricing methods. It emphasizes the importance of contemporaneous documentation.

Industry and Company Analysis

Value drivers in the relevant industry are considered, along with a detailed analysis of the local entity’s management structure, business strategy, and any involvement in business restructurings or intangibles transfers.

Choice of Transfer Pricing Method

Various methods for documenting transactions are discussed, and taxpayers must choose the “best method” for the most reliable arm’s length result.

Economic Analysis and Benchmark Study

For U.S. taxpayers, using U.S. comparables is favored, but comparables from Canada may also be acceptable. The document advises against using uncontrolled comparables.

Inter-company Legal Agreement and Financial Statements

The role of inter-company legal agreements is discussed. Publicly traded companies must provide specific financial data to the SEC in annual reports.

Production Process and Notification Requirement

Detailed information on filing requirements, deadlines, and notification obligations is provided. All documentation must be in English.

Record Keeping and Penalties

While there’s no statutory requirement to keep transfer pricing documentation, it can help avoid penalties. Penalties for underpayment of taxes due to incorrect transfer pricing are explained.