TAX 700_Week 1_ Discussion_ Post 4

Transfera pricinga isa botha ana opportunitya anda aa riska fora mulnaonala companies.a IRCa Secona 482a

allowsa organizaons,a trades,a ora businessesa owneda ora controlleda directlya ora indirectlya bya thea samea

interestsa toa distribute,a apporon,a ora allocatea grossa income,a deducons,a credits,a ora allowancesa

betweena ora amonga sucha organizaons,a trades,a ora businessesa ifa necessarya toa preventa evasiona ofa

taxesa ora reecta thea income.a Ifa donea domescallya thisa createsa aa washa buta donea internaonallya ita

presentsa ana opportunitya fora mulnaonala companiesa toa shia incomea toa countriesa witha lowera taxa

rates.

Whilea thisa shia isa legallya allowed,a somea corporaonsa cana bea tempteda toa takea advantagea anda misusea

thisa opportunitya provideda bya thea taxa regulaon.a Thisa isa aa hugea riska asa transfera pricinga isa scrunizeda

bya taxa authoriesa anda carriesa heavya penalesa fora inappropriatea usea ora errors.a Sec.a 482a addionala

includesa thata ina thea casea ofa anya transfera ofa intangiblea propertya thea incomea musta bea appropriatea fora

thea incomea aributablea toa thea intangiblea anda requiresa aa valuaon.a Thisa providesa aa challengea fora

somea corporaons.a Treas.a Reg.a Sec.a 1.482-1a anda 1.6662-6a doesa providea somea guidancea anda

interpretaona ofa thea stricta requirementsa asa wella asa penalesa involved.a a

Ia doa nota havea ana opiniona asa fara asa whethera Ia agreea ora disagreea witha transfera pricing,a Ia cana seea thea

prosa anda consa ona botha sides.a Fora example,a onea proa isa thata companiesa thata engagea ina transfera pricinga

strategiesa cana helpa reducea taxa liabiliesa allowinga fora morea protsa toa bea reinvesteda backa intoa thea

companya fora R&Da anda such.a Ona thea othera hand,a ita cana createa aa compevea disadvantagea fora manya

domesca companiesa compenga witha thosea mulnaonala companiesa becausea theira highera taxa

burdena meansa lessa retaineda protsa toa bea reinvested.

Froma priora knowledgea eacha subsidiarya ora entya withina aa parenta companya area theira owna corporaon.a

a Thisa enablesa eacha subsidiarya toa bea requireda toa lea taxesa ona theira owna §a 11a anda taxesa imposeda isa

21%.a a Althougha thea corporatea taxa ratea imposeda hasa beena lowereda ina thea lasta severala years,a therea area

slla countriesa witha evena lowera ratea rates.

So,a whena aa U.S.a corporaona decidesa toa movea aa porona ofa theira businessa bya creanga aa foreigna

subsidiary,a theya cana achievea aa lowera taxa liability.a a Thea amounta thata getsa transferreda accordinga toa §a

482a states,a “Requirea thea valuaona ofa transfersa ofa intangiblea propertya (includinga intangiblea propertya

transferreda witha othera propertya ora services)a ona ana aggregatea basisa ora thea valuaona ofa sucha aa

transfera ona thea basisa ofa thea realisca alternavesa toa sucha aa transfer”.

Ia cana seea howa thisa cana bea verya riskya especiallya witha intangiblea assetsa thata area uniquea wherea therea isa

nota mucha toa comparea againsta toa ensurea aa realisca valuaona isa genga created.a However,a therea isa aa

thresholda fora valuaonsa ina regardsa toa §a 482,a specicallya §a 6662a statesa thata thea valuea ofa propertya

misstateda thata fallsa outsidea ofa 50%-200%a thena therea woulda bea aa penalty.a a a Thisa rangea isa verya largea

thresholda Ia woulda nota agreea thata understanga bya doublea thea accuratea valuaona isa aa fair.a a a

References

§a 11:a Taxa imposed

§a 482:a Allocaona ofa incomea anda deduconsa amonga taxpayers

§a 6662:a Imposiona ofa accuracy-relateda penaltya ona underpayments

26a U.S.a Codea §a 482a -a Allocaona ofa incomea anda deduconsa amonga taxpayers

26a CFRa §a 1.482-1a -a Allocaona ofa incomea anda deduconsa amonga taxpayers.

26a CFRa §a 1.6662-6a -a Transaconsa betweena personsa describeda ina secona 482a anda neta secona 482a

transfera pricea adjustments.