This book presents a case study in selecting a transfer pricing methodology and analyzes three alternative strategies:
(1) advance pricing agreements,
(2) cost sharing arrangements, and
3) the use of joint ventures.
The case study uses a fictional company to provide a practical background on how to prepare a transfer pricing study to meet the regulatory and administrative documentation required in the United States and under the OECD (Organization for Economic Cooperation and Development) Guidelines The advance pricing agreements discussion looks at the factors to consider in deciding whether to seek an APA and details the considerations to take into account the steps to take at each stage of the APA process (including the prefiling conference, submission of the APA application and supporting data, negotiating the APA, and administering the APA).
In addition, foreign APA procedures are also discussed. The cost sharing arrangements discussion describes the considerations in deciding whether affiliated parties that are developing intangible property should us a cost sharing arrangement to share the costs of development and allocate ownership of such property.
Methods for developing and documenting a qualified cost sharing arrangement, including selecting an intangible development area, selecting participants, measuring the costs to be shared, selecting the method for sharing costs, and required tax filing and document maintenance. In addition, treatment of cost sharing payments and arrangements, buy-in and buy-out payments, international acceptance of cost sharing arrangements, the IRS's authority to reallocate cost sharing payments and to impose cost sharing, and the use of advanced pricing agreements to obtain IRS approval of the terms of cost sharing agreements are discussed.
The international joint ventures discussion analyzes how to establish the absence of common control under Section 482 and avoid hidden or creeping control in joint ventures. Other tax planning issues in the joint venture context, such as tax cooperation agreements, choice of entity, sham treatment, taxation of formation transactions, taxation of operating income, repatriation of income and foreign tax credit planning, and the termination of a joint venture are also covered.
