As a result of the Xilinx case, the IRS revised Treas. 2010), the IRS made the same argument and lost. 6253-12, 9963-12, the IRS asserts that unrelated party comparable data is irrelevant in determining whether parties to a cost sharing agreement must include stock-based compensation. While the US supports the arm's-length standard internationally, domestically the IRS itself has sought to undermine the arm's-length standard in recent transfer pricing disputes and in the cost sharing regulations.
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Robert Stack, deputy assistant secretary for international tax affairs with the US Treasury and the US delegate to the OECD, recently said the US wants a thorough discussion paper on the arm's-length principle that deals with how to price hard-to-value intangibles. The US Treasury, although it has its own discomfort with the arm's-length standard (as discussed below), is not supportive of the OECD's efforts. No country wants to lose revenue as a result of a transfer pricing "special measure".
It will be difficult to build a consensus among countries on the application and administration of "special measures". The concept of a "special measure" involves subjectivity and vagueness, which obscure the arm's-length standard.Ī "special measure" by its very nature suggests a movement away from a consistent pricing methodology. The OECD is considering circumstances in which related-party contracts can, or should be, ignored under a "special measure". § 1.482-1(b)(1), the standard to be applied "in every case" under Section 482 is the arm's-length standard.Īccording to the OECD BEPS discussion drafts: "Special measures, either within or beyond the arm's-length principle, may be required with respect to intangible assets, risk and over-capitalisation", to address purported flaws in the transfer pricing system. It is a simple concept that can be applied consistently. However, in for the past year, at least, it has been under significant attack as a result of the OECD's base erosion and profit shifting (BEPS) papers.Īrm's-length principles are based on what unrelated parties would agree to under similar circumstances. The arm's-length standard has served as the foundation of the world's transfer pricing for the last half century.
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