Transfer Pricing - United States

The United States applies the arm’s length standard to determine transfer prices for all transactions between commonly controlled taxpayers (Treasury Regulations (Treas. Reg.) § 1.482-1(b)(1)). The regulations are based on section 482 of the Internal Revenue Code of 1986, as amended (IRC), which, while it does not specifically provide for application of the arm’s length standard, provides broad authority to the US tax administration – the Internal Revenue Service (IRS) – to allocate income among related entities for federal income tax purposes.

The comprehensive transfer pricing regulations developed by the IRS (Treas. §§ 1.482-0 through 1.482-9) establish general principles applicable to all transfer pricing determinations, and provide specific transfer pricing methodologies to be applied to various types of related transactions. Since the current regulations were published in 1994, additional detailed regulations have been published to address specific types of transactions, including intercompany services, global dealing in financial instruments (proposed), research and development (R&D) CSAs, and the ownership of intangible property. The courts have consistently followed the principles set forth in these regulations to resolve litigated transfer pricing cases.

Transfer Pricing in United States

The transfer pricing regulations are divided into nine sections, plus an outline (Treas. Reg. § 1.482-0):

– Section 1.482-1 provides general principles and guidelines for determining whether a controlled transaction is arm’s length, including the selection of a transfer pricing method and factors for determining comparability.

– Section 1.482-2 provides rules for determining the appropriateness of the interest rate charged on bona fide indebtedness and the rental charge for the possession, use, or occupancy of tangible property between controlled parties.

– Sections 1.482-3 and 1.482-4 provide the permissible methods for determining the arm’s length charge in a controlled transfer of tangible and intangible property, respectively.

– Section 1.482-5 provides rules for applying the comparable profits method (CPM) (which is similar to the OECD’s transactional net margin method (TNMM)).

– Section 1.482-6 provides rules for application of comparable and residual profit split methods (RPSMs).

– Section 1.482-7 provides rules and permissible methods for CSAs.

– Section 1.482-8 provides examples illustrating the comparative analysis required under the best method rule of section 1.482-1(c). Proposed section 1.482-8 provides rules for allocating the profits of a global dealing operation.

– Section 1.482-9 provides rules for evaluating the arm’s length amount charged in a controlled services transaction

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)).

Choose the service offering you want to proceed with

Arm's Length Analysis

Transfer Pricing Documentation starting at

For other services

A Transfer Pricing Solutions Provider in United States

Planning & Litigation Support Solutions

We help design and implement Global TP Policy / review Agreements for Multinational Corporations. We also provide TP litigation support services.

Transfer Pricing Documentation Solutions

Transfer Pricing compliance requirements by delivering meticulously prepared Documentation as per Local TP Regulations and global standards.

TP Due Diligence / Health Check Services

We assist in identifying gaps by providing health check up from Legal, Corporate and TP documentation perspective.


We have access to various public financial and company databases, industry and directories which assist us to render comprehensive TP analysis.

Mail Us

Contact our Experts

Gyan Prakash Srivastava [MBA, LL.B.]

Leader - South Asia Practice
17+ years experience in Global Transfer Pricing Documentation, Litigation, BEPS compliance & advisory. During his tenure with PwC & Deloitte he has worked for marquee clients. Gyan specializes in assisting clients in developing cross border business models based on on-ground commercial facts and legal issues.

Udit Gupta [MIA, CA]

Principal North America Practice

12+ years experience in Transfer Pricing & International Taxation in multiple jurisdictions including S.E Asia, USA and India. He has worked with Deloitte Haskins & Sells, Malaysia and with Ernst & Young in Transfer Pricing division.

He is a member of Malaysian Institute of Accountants with enriched experience in Malaysian Transfer Pricing Documentation.

Shopping Basket