A multinational company with a presence in countries outside of the United States, while doing transactions amongst its subsidiaries and affiliates, needs to be aware of transfer pricing rules. Under U.S. tax laws, the transfer pricing rules in IRC Section 482 are designed to prevent the artificial shifting of taxable income among related entities, especially shifting taxable income outside the US.

IRC Section 482 gives the Internal Revenue Service (IRS) the authority to enforce transfer pricing rules. If any of the transfer pricing rules are violated, the IRS can reallocate income, deductions, credits and allowances among commonly owned or controlled “trades, organizations or businesses” to prevent evasion of taxes or to clearly reflect income.

What Types of Entities Does the Transfer Pricing Rule Apply To?

The rules of IRC Section 482 apply to more than just transactions between subsidiaries owned directly or indirectly by a common parent company. Transfer Pricing rules can also apply to transactions between affiliate companies. Some examples of affiliate companies may include:

• A partner and partnership.
• Two partnerships owned by the same partners.
• Common parent of a group and a subsidiary.
• A partnership and corporation owned or controlled by the same persons.
• An entity and each of its 50% stockholders if the stockholders have the same business interests in the jointly-owned entity.

What Types of Entities Does the Transfer Pricing Rule Not Apply to?

Generally, the transfer pricing rules in IRC Section 482 are not applied to transactions among US corporations that file a consolidated US federal income tax return.

Transfer Pricing Study Documentation

 If your company does cross border transactions with affiliates and/or subsidiaries outside of the United States, you are required to complete a Transfer Pricing Study Documentation prior to filing your first year of company tax. Our firm is experienced in preparing transfer pricing study documentation. Contact us today for a flat rate.