Peters Advisors LLC regularly updates its clients on new developments involving transfer pricing and tax valuation, and provides our insights regarding the pragmatic implications of these changes for managing their business.
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TRANSFER PRICING NEWS |
Recent Development:
The Tax Executives Institute ("TEI") recently asked the Organization for Economic Cooperation and Development ("OECD") to encourage countries to adopt transfer pricing rules similar to the U.S. safe harbor rules for the services cost method ("SCM"). Further, taxpayer representatives posted comment letters on the OECD's website unanimously encouraging the OECD to update its guidance regarding safe harbors to include their usage for low-value intercompany services.
The Services Cost Method (Regs. §1.482-9(b)) allows US Taxpayers to compensate certain services at full costs without a margin if they meet certain criteria:
- have a median comparable markup of 7 percent or less or are listed in Rev. Proc. 2007-13 ("the White List");
- are not listed as excluded activities;
- do not contribute significantly to key competitive advantages, core capabilities, or fundamental risks of success or failure; and
- for which certain documentation requirements are satisfied.
Pragmatic Implications:
We have found that the primary issue surrounding the sort of services that qualify for the SCM safe harbor has been the ultimate deductibility of these expenses in the recipient country, rather than the actual profit margins associated with the services.
We believe that the deductibility of these expenses is best managed through implementation of a rigorous transfer pricing analysis and documentation process, which includes:
- preparing proper documentation identifying the benefits received by all recipients;
- determining and documenting an equitable and reliable allocation basis; and
- properly invoicing of such services on a regular basis.
We applaud TEI's efforts and certainly agree that expanding the cost-only safe harbor throughout the OECD would improve certain awkward mismatches between the US and most other foreign countries. We doubt that OECD or its member countries will move quickly to adopt the TEI recommendations.
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ABOUT US |
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Peters Advisors LLC is an independent provider of transfer pricing and tax valuation services. We have advised a significant number of the world's leading multinational corporations on transfer pricing and tax valuation matters and have worked both in an in-house and advisory capacity. We work together with our clients to deliver outstanding results from focused, insightful, and pragmatic advice. |
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We inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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