- Whether the taxpayer applies methods of amortization or depreciation, or
- Whether the taxpayer properly allocates and apportions expenses.
(c) Industry Segments
(i) Preparation of Documents and the Supplying of Documents. For each such indus-
trial segment, prepare and supply to the Internal Revenue Service the following state-
ments for the year under review, including
- The profit and loss statement of the related-party group
- The balance sheet for the related-party group immediately preceding the year
under review - The balance sheet for the related-party group immediately after the year under
review
Such statements are to be determined for each industry segment of the business for
which the amount of gross revenue earned by the related-party group from the pro-
vision of U.S. products or services within the industry segment is $25 million or more
for the taxable year.
(ii) Selecting Industrial Segments. The taxpayer is to provide the IRS with informa-
tion and documents in a manner that maximizes the number of industrial segments in
which U.S. products or services within the industry segment are $25 million or more
for the taxable year.
The taxpayer is to select industrial segments with due regard to its product lines,
products, models and related party services.
The Initial Transfer Pricing Information Document Request is broader than the
Treasury Regulations in three respects:
1.Treasury Section 1.6038A-3(c)(5)(I)(B) limits the industrial segment analysis
to those industry segments that are 10% of the worldwide gross revenue of the
affiliated group’s combined industry segments,
2.Treasury Regulation Section 1.6038A-3(c)(6)(I)(B) speaks of $100 million seg-
ments under the high profit test,
3.The return of assets test under Treasury Regulation Section 1.6038A-3(c)(6)(ii)
addresses segments having worldwide operations of 15% or more, and a return
on assets that is at least 200% of the return on assets earned by the group in all
industrial segments combined.The Initial Transfer Pricing Information Document Request is designed in part to
test whether the taxpayer meets the above-mentioned segment requirements.
(iii) Complying and Supplying Profit and Loss Statements and Balance Sheets. The
taxpayer is instructed to use the following rules for complying and supplying profit
and loss statements and balance sheets for purposes of this analysis:
- The profit and loss statements must reflect the consolidated revenue and expense
of all members of the related party group. Thus, raw materials might be used by
29.20 THE STANDARD INITIAL TRANSFER PRICING REQUEST 29 • 31