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.