|
American Internal Revenue Code Section 482 governs inbound and
outbound transfer pring transactions.Final regulations,
released by IRS on July 1 1994,grant taxpayers more flexibility
on "best" transfer pricing method and comparables.Flexibility
increases at expense of contemporaneous documentations which
fairly face large and small corporations. Final regulations are
based on "Arm''s Length principle"and "commensurate with income
principle".It also refer to "comparability principle","best
method principle","arm-length range","legal ownership rule on
intangible", multiyear rule". Final regulations set forth six
alternative transfer pricing methodologies to be applied to the
sale of tangible goods between related parties in order to
reflect arm''s length pricing.There are comparable uncontrolled
price method,resale price method,cost plus method,comparable
profit method, profit split method,and other unspecified method.
Methods governing the transfer of intangiles are uncontrolled
transaction method,comparable profit method,profit split method,
and other unspecified methods. According to final section 482
regulations on cost sharing (1.482-7), "qualified participans"
of "qualifed cost sharing agreement" should share development
cost in accordance with relative expected benefit share under
cost sharing agreement. Taxpayers subject to section 482
adjustments may subject to 20 or 40％ transfer pricing penalty.
The safe harbor of penalty is "reasonable cause and good faith"
and contemporaneous documentation.To avoid the uncertainty of
intercompany pricing, it is time to consider to enter "Adance
Pricing Agreement" on transfer pricing method and arm''s length
range with IRS.
|