Transfer pricing in the United States

Transfer pricing in the United States at a glance USA

Regulation Type National regulation in line with the OECD
Are there specific transfer pricing regulations? Yes
Submission deadline N/A
Submission deadline upon request 30 days
Annual update required No
Official language requirements None, but English is customary
Potential impact of penalties 20 or 40 percent of additional taxes due

 

The United States tax law

Rules for transfer pricing in the United States are based upon:

  • Internal Revenue Code (IRC) §§482, 6038A, 6038C, 6662 and 7701(o)
  • Treasury Regulations (Treas. Regs.) §§1.482, 1.6662, 1.6038A, 1.6038C
  • Revenue Procedure (Rev. Proc.) 99-32, Rev. Proc. 2006-9, Rev. Proc. 2006-54,and Rev. Proc. 2007-13

OECD

The U.S. Internal Revenue Service (IRS) considers its transfer pricing laws and regulations to be consistent with OECD Transfer Pricing Guidelines. For domestic purposes, the OECD Guidelines do not provide support, and would not be directly relevant to the application of any pricing methods. However, if taxpayers pursue Competent Authority relief from double taxation, or a bilateral APA, the OECD Guidelines are relevant and may be used to demonstrate compliance with international principles.

Methods

Accepted methods 

Accepted methods are:

In the United States, different transfer pricing methods are applicable to different types of transactions. Below is an overview of the methods that are accepted for each:

Tangible goods:

  • Comparable Uncontrolled Price (CUP) method
  • Resale price method
  • Cost-plus method
  • Comparable profit method (CPM)
  • Profit-split method
  • Unspecified methods

Intangible property:

  • Comparable Uncontrolled Transaction
  • CPM
  • Profit-split method
  • Unspecified methods

Services:

  • Services cost method (SCM) (determines the service charge based on the costs of providing the service, with no added profit element; applicable only to routine, low-margin services)
  • Comparable Uncontrolled Services Price (CUSP) method
  • Gross Services Margin method
  • Cost of Services Plus method
  • CPM
  • Profit-split method
  • Unspecified methods

Cost sharing arrangement buy-ins (platform contribution transactions):

  • CUT method
  • Income method
  • Acquisition Price method
  • Market Capitalization method
  • Residual Profit-split method
  • Unspecified methods

Priority of methods

Rules for transfer pricing in the United States prescribe that the best applicable method should be used.

Documentation requirements

Although documentation is not specifically required by the U.S. regulations, compliance with the transfer pricing documentation regulations can protect taxpayers from additional penalties due on the amount of any underpayment of tax.

Information that should be included in the documentation:

  • An overview of the taxpayer’s business and an analysis of the legal and economic factors affecting pricing
  • A description of the organizational structure;
  • Any documents explicitly required by regulations (e.g., CSA documents)
  • A description of the pricing method and reasons why the method was selected (a best method analysis)
  • A description of alternative methods and why they were not selected
  • A description of controlled transactions and any internal data used to analyze them
  • A description of comparables used, how comparability was evaluated and any adjustments that were made
  • An explanation of any economic analysis and any projections used to develop the pricing method
  • Any material data discovered after the close of the tax year but before filling the tax return
  • A general index of the principal and background documents and a description of the recordkeeping system
  • A general index of the principal and background documents and a description of the recordkeeping system

Language

There are no rules in the United States that require documentation be submitted in English, however, this would be customary in practice.

Requirements to prepare documentation annually 

Taxpayers in the United States are not obliged to update their documentation annually. However, doing so will increase the probability of penalty protection.

Submission deadline upon request by tax authorities

Upon request by the IRS, taxpayers have 30 days to submit documentation.

Advance Pricing Agreements

General

In the United States it is possible to obtain unilateral, bilateral and multilateral Advance Pricing Agreements (APA).

Terms

A term for which an APA is agreed upon in the United States generally is five years. However, this term is not fixed and is open for discussion. In addition, rollbacks are permitted to cover open historical years.

Penalties

Rules for transfer pricing in the United States state that a transfer pricing penalty of 20 percent or 40 percent of additional tax resulting from adjustments exceeding objective thresholds may be imposed.

Transferpricing.wiki | the global transfer pricing reference guide