29 • 1

CHAPTER

29

TRANSFER PRICING FOR

INTERCOMPANY TRANSACTIONS

Robert Feinschreiber

Feinschreiber & Associates

Margaret Kent

Feinschreiber & Associates

CONTENTS

29.1 Introduction 3
(a) Transfer Pricing as a Decision-
Making Process 3
(b) Tax and Nontax Considerations 3
(c) Ascertaining Who Is at Risk 3
(d) Foreign Country Participation
in Transfer Pricing 4
(e) Basics of the Transfer Pricing
Inquiry 4
(f) Transfer Pricing Reference
Materials 5
29.2 Transfer Pricing Methodologies 5
(a) Transfer Pricing Methodologies 5
(b) Specific Methods 5
(c) Comparability Analysis 5
(d) U.S. Transfer Pricing 6
(e) Comparable Profits Method
and SIC Codes 6
(f) Substantiating Transfer Pricing 7
29.3 Transfer Pricing Penalties in the
United States 7
(a) Substantial Misstatement
Penalty 7
(b) Gross Misstatement Penalty 8
(c) Net Adjustment Penalty 8
(d) Substantial Valuation
Misstatement Net Adjustment
Penalty 8
29.4 Foreign-Owned Businesses Doing
Business in the United States 9
(a) Responsibilities Imposed 9
(b) Reporting Requirements 9

(c) Specific Database

Requirements 10

(d) Six Reporting Levels 11

(e) Penalties on Foreign-Owned

U.S. Corporations 11

29.5 Introducing the Advance Pricing

Agreement Process 12

29.6 Proposals for Revising the

Transfer Pricing Audit Structure 12

29.7 Using Data Sources 13

(a) International Merger Example 13

(b) Engineering Economy

Example 13

(c) Divisional Tax Accounting and

Intracompany Transfer Pricing 13

29.8 Cost Issues, Excess Capacity, and

Cost Structures Overseas 14

(a) Example 14

(b) Example Postscript 15

29.9 Advance Pricing Agreements 15

(a) Unilateral, Bilateral, and

Multinational Agreements 15

(b) Competent Authority

Compensations 16

29.10 Gray Market Considerations 16

(a) Example 16

(b) Suggestions 17

29.11 Corporate Goals and Structure 17

29.12 Determining Who Owns the

Intangibles 18

(a) When Does the Intangible

Issue Arise? 18