martes, 19 de julio de 2016

US Tax Court imposes a proper arm's length allocation method for transfer pricing

On 9 June 2016, the US Tax Court (the Court) issued an opinion1 in which it concluded that transfer pricing adjustments the Internal Revenue Service (the Service) made to Medtronic, Inc.’s (Medtronic US’s) income for the 2005 and 2006 tax years were arbitrary, capricious and unreasonable. Specifically, the Court rejected the Service’s value chain analysis approach, and found particular fault with the Service’s failure to accord the proper weight to the role that quality control performed by Medtronic US’s Puerto Rico manufacturing and sales entity played in the value chain. However, the Court also concluded that Medtronic US’s application of the comparable uncontrolled transaction (CUT) method had significant deficiencies, thereby rendering the result unreasonable. Thus, the Court was forced to determine a proper arm’s length allocation method for both devices and leads licenses, which it ultimately did by applying several adjustments to Medtronic US’s proffered CUT. Further, the Court determined that the Service’s alternative Section2 367(d) argument was meritless, as no intangibles subject to that Code provision had been transferred.

Source & more info: EY

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