Transfer Pricing: A Case Study (Methods and Documentation) (Portfolio 6912)

Tax Management Portfolio No. 6912, Transfer Pricing: A Case Study (Methods and Documentation), uses a case study involving a fictional company to provide a practical background on how to prepare a transfer pricing study to meet the regulatory and administrative documentation requirements in the United States and under the OECD Guidelines. To view this Portfolio, visit Bloomberg Tax for a free trial.

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Description

Tax Management Portfolio No. 6912, Transfer Pricing: A Case Study (Methods and Documentation), uses a case study involving a fictional company to provide a practical background on how to prepare a transfer pricing study to meet the regulatory and administrative documentation requirements in the United States and under the OECD Guidelines. The Portfolio uses this fictional example, explanatory text, numerous tables, and sample documents in the Worksheets to take the reader step-by-step through a transfer pricing study. Worksheets also provide an illustrative documentation report, prepared under §6662(e), regarding the intercompany transactions presented in the case study. Similar studies are used by taxpayers to ensure that their transfer prices with related entities will meet the requirements of taxing authorities and fiduciary standards.

This Portfolio may be cited as Levey, Carmichael, Gerdes, and Arthur, 6912 T.M., Transfer Pricing: A Case Study (Methods and Documentation).

Authors

Marc M. Levey, Esq.

Marc M. Levey, Wilkes University (B.S. 1969); University of Cincinnati College of Law (J.D. 1972); University of Miami Law School (L.L.M. 1973); Principal, Baker & McKenzie; Special Attorney to the Attorney General, U.S. Department of Justice (1981–83); Senior Trial Attorney, U.S. Department of Justice (1982); Attorney, International Tax Ruling Group, Internal Revenue Service (1975–77); Founding Chairman of the American Bar Association's Tax Section, Transfer Pricing Committee, and prior Vice Chairman of the Affiliated and Related Party Tax Committee; Director of International Tax Institute, Inc.; member of the Advisory Boards of numerous leading tax journals, such as the Tax Management International Journal, Journal of International Taxation, International Tax Journal; author for numerous other publications and a frequent speaker on transfer pricing issues.

Philip W. Carmichael

Philip W. Carmichael, University of Notre Dame (B.A. 1984); Georgetown University (M.B.A. 1989); Principal Economist, Baker & McKenzie Consulting LLP; Principal, Economic and Valuation Services practice of KPMG LLP (1994–2006); Associate, Putnam, Hayes & Bartlett, Inc. (1989-94); Associate, National Economics Research Associates, Inc. (1985–87).

Imke Gerdes, Esq.

Imke Gerdes, University of Passau (1998), University of Vienna for Economics and Business Administration (LL.M. in International Tax Law 2004); Partner, Baker & McKenzie; admitted in Germany and Austria, only, member of the Cologne Bar and the Austrian Chamber of Tax Advisors; Founding Vice President of the Austrian STEP Chapter. 

Brian Arthur, Esq.

Brian Arthur, University of Florida (B.S., with honors, 1998; J.D., with honors and Master of Accounting, 2002; LL.M. in Taxation 2004); Certified Public Accountant; Partner, Baker & McKenzie; Associate, White & Case (2006–2008); Attorney-Advisor to the Honorable Judge Joel Gerber, the United States Tax Court (2004–2006); Member, J. Edgar Murdock American Inn of Court, U.S. Tax Court.

Table of Contents

Detailed Analysis
I. Introduction
II. Documentation Rules
III. Use of Case Study Format
IV. Functional Analysis
Introductory Material
A. The Importance of the Functional Analysis
B. How to Develop a Functional Analysis
V. Application of Functional Analysis to CPC Organization
Introductory Material
A. Products
B. Market for Business Electronic Products
C. Functions
1. Research and Development
2. Manufacturing
3. Brand Development
4. Marketing and Sales
D. Intercompany Transactions
E. Contractual Terms
F. Economic Conditions
G. Assets
H. Risks
VI. Financial Results
A. CPC-Canada
B. CPC-France
C. CPC-Germany
D. CPC-UK
E. CPC-Ireland
VII. Transfer Pricing Methodology
A. U.S. Regulations
1. General Principles and History
2. Arm's-Length Standard
3. Standards of Comparability
4. Best Method Rule
B. Transfer Pricing Methods for Transfers of Tangible Property
1. Comparable Uncontrolled Price (CUP) Method
2. Resale Price Method (RPM)
3. Cost Plus Method (CPLM)
4. Comparable Profits Method (CPM)
5. Profit Split Methods
a. Comparable Profit Split
b. Residual Profit Split
6. Other Methods
C. Application of the Comparable Profits Method
1. Identifying the Tested Party
2. Selection of Profit Level Indicator
D. Transfer Pricing Methods for Transfers of Intangible Property
E. Transfer Pricing Methods for Provision of Intercompany Services
1. Services Regulations
2. Selection of Method for Analyzing Service Transactions
F. OECD Guidelines
1. OECD Model Tax Convention and Guidelines
2. Reaffirmation of the Arm's-Length Principle
a. Transaction-Based Pricing Methods
b. Profit-Based Methods
c. Aggregation of Transactions
3. Special Rules for Intangible Property Transactions
VIII. Comparables Analysis
A. Comparables Search Guidelines
B. The Search for Comparable Companies
C. Comparability Adjustments
D. Identifying Potentially Comparable Companies
E. Use of Databases in Comparable Company Searches
F. North American Distributors of Electronic Products
1. Unadjusted Results
2. Adjustments for Accounting Differences and Working Capital Differences
3. Adjusted Results
G. European Distributors of Electronic Products
1. Unadjusted Results
2. Adjusted Results — CPC-France
3. Adjusted Results — CPC-Germany
4. Adjusted Results –— CPC-UK
H. Comparable License Agreements
I. Contract R&D Service Providers
1. Unadjusted Results
2. Adjusted Results
IX. Summary and Conclusions

Working Papers

Table of Worksheets
Worksheet 1 Sample Questionnaire
Worksheet 2 Screening Process for North American Distributors of Electronic Products
Worksheet 3 Financial Statements for North American Distributors of Electronic Products
Worksheet 4 Screening Process for European Distributors of Electronic Products
Worksheet 5 Financial Statements for European Distributors of Electronic Products
Worksheet 6 Screening Process for Comparable License Agreements
Worksheet 7 Screening Process for Contract R&D Service Providers
Worksheet 8 Financial Statements for Contract R&D Service Providers
Worksheet 9 Sample Documentation Report
Worksheet 10 Sample Intercompany Agreements