Today’s issue of Transfer Pricing Report is a milestone for the publication: we’ve now been reporting on these issues for 20 years! So how have things changed? Our very first issue, dated May 13, 1992, contained the following stories:

• A reaction to the Procter & Gamble ruling by the U.S. Court of Appeals for the Sixth Circuit. The case dealt with the IRS’s ability to apply Section 482 when foreign law precludes the taxpayer from controlling the repatriation of income. Under Spanish law, P&G’s Spanish subsidiary was not permitted to make royalty payments to the parent company as the IRS directed in its allocation under Section 482. Practitioners said the ruling did not bode well for the government’s position in the ARAMCO cases, which also involved foreign blocking laws. The IRS later lost those cases as well.
• A former U.S. Treasury official, John Nolan, asked to file an amicus brief in a case over whether Yamaha could force the United States to enter into competent authority negotiations with Japan. The IRS had designated Yamaha’s issues for litigation, and the IRS had refused to accept the company’s competent authority request until its Tax Court case was disposed of. The IRS later agreed to allow the case to proceed to competent authority following a Tax Court ruling on burden of proof. Following competent authority negotiations, the company agreed to pay $15.8 million for 1977-85. The IRS had allocated more than $700 million to the company from the pricing of motorcycles with Japan for those years.
• A request by practitioners for a safe harbor to protect against the Section 6662(e) valuation misstatement penalty. At the time, the IRS was considering a sliding scale requirement under which the magnitude of the transaction should be a factor in determining the degree of due diligence necessary. Detailed regulations outlining the IRS’s documentation regime were issued in 1994.
• The first advance pricing agreements on global trading in financial instruments, announced by Sumitomo Bank Capital Markets and Barclays Bank.

Today, foreign blocking laws are a thing of the past; U.S. transfer pricing litigation has declined to a handful of cases, while Indian courts decide roughly 40 cases a year; documentation requirements have proliferated all over the world, becoming a huge burden for multinational companies; and while limited guidance exists on global trading to this day, APA programs are ubiquitous.

While the issues have changed, the level of certainty surrounding transfer pricing has not. To quote William Morgan, the IRS’s senior economic adviser, “Interesting new economic issues may arise, but they will still fall under the umbrellas of arm's-length pricing and the most reliable way to get there. Luckily we all latched onto careers with job security.”

Molly Moses
Managing Editor, Transfer Pricing Report