US transfer pricing regime applies broadly to any dealings between related entities. Those rules apply to all taxpayers, including individuals, corporations, partnerships, trusts, and any other taxpayer. In addition, the rules apply equally to foreign owned enterprises and domestically owned enterprises, and even apply to transactions between two or more foreign entities if the transfer price is relevant for US tax purposes.

The United States, in contrast to many OECD countries, has not adopted all of the documentation elements identified in the Final Report on Action 13. The IRS has not adopted the Master File and Local File requirements, but has enacted regulations requiring country-by-country (CbC) reporting. The existing section 6662 regulations remain in force and serve the purpose of the Master File and Local File.

Not Applicable

The transfer pricing documentation regulations were finalized in 1996, and set forth in detail the types of documents that must be maintained and produced (Treas. Reg. § 1.6662-6(d)(2)(iii)). They differ depending on whether the taxpayer relies on one of the transfer pricing methods specified in the section 482 regulations. There is no formal revenue threshold for reporting, and reporting is voluntary.

If the taxpayer uses a specified method, the documentation requirements are met if the taxpayer:

 – maintains sufficient documentation to establish that reasonably concluded, given the available data and the applicable pricing methods, that the method (and its application of that method) provided the most reliable measure of an arm’s length result under the principles of the best method rule; and

 – the taxpayer provides such documentation to the IRS within 30 days of a request.

For taxpayers who use an unspecified method, the penalty regulations require the taxpayer to establish that:

 – none of the specified methods was likely to result in a price that would clearly reflect income;

 – the non-specified method used was likely to result in a price that would clearly reflect income; and

 – the taxpayer’s documentation sets forth the determination of prices in accordance with the unspecified method and establishes that the method was the best method under the circumstances (Treas. Reg. § 1.6662-6(d)(3)).

In view of the substantial penalties that may be imposed for failure to meet the section 6662(e) requirements, most taxpayers develop transfer pricing documentation before filing their tax returns. The taxpayer is required to deliver that documentation to the IRS within 30 days of the request.

Every US parent company that owns a business that is tax resident in another country must file a CbC report if the annual revenue for the MNC worldwide group, for the year immediately preceding the reporting year, was USD 850 million or more (Treas. Reg. § 1.6038-4(h)). The United States adopts exactly the OECD’s recommended CbC report content. The CbC report must express all currency amounts in US dollars.

Form 8975 must be filed with the parent entity’s income tax return for the year (Treas. Reg. § 1.6038-4(f)). If the reporting year for CbC reporting purposes differs from the parent’s taxable year, the form is to be filed with the return for the year in which the CbC reporting year ends (Treas. Reg. § 1.6038-4(f)).