A party is to be treated as related party based on 25% direct or indirect common own-
ership. Corporations filing a consolidated federal tax return can elect to treat the con-
solidated tax return as one entity. This definition of related party is taken from Trea-
sury Regulation Section 1.6038A-1(d). The Initial Transfer Pricing Information
Document Request affirmatively addresses the 25% threshold in Treasury Regulation
Section 1.6038A-1(d). The definition of a related party is broader in the Initial Trans-
fer Pricing Information Document Request so as to test whether the taxpayer is com-
plying with the requirements of Treasury Regulation Section 1.6038A, Section 482
and Section 6662.
(iii) Related-Party Group. A related-party group encompasses the taxpayer and all
related parties, whether foreign or domestic. This definition of related-party group is
taken from Treasury Regulation Section 1.6038A-3(c)(2)(ii), which deals with profit
and loss statements, and with Treasury Regulation Section 1.6038A-1(d), which
deals with the definition of related-party group. This definition of related-party group
is taken from Treasury Regulation Section 1.6038A-3(c)(4), the existing records test.
Treasury Regulation Section 1.6038A-3(c)(4) determines the materiality of the
records by their presence of these records.
(iv) U.S.-Connected Products or Services. U.S.-connected products or services
means products or services that are imported to or exported from the United States
by transfers by the taxpayer and any of its related parties. For this purpose, exports
are added to each other and are not subtracted. The definition of “U.S.-connected
products or services” is taken from the definition of that term as specified in Treasury
Regulation Section 1.6038A-3(c)(7)(i). The Initial Transfer Pricing Information Doc-
ument Request terminology is somewhat broader than the comparable term in the
regulations. The Initial Transfer Pricing Information Document Request refers to all
related parties, but Treasury Regulation Section 1.6038A-3(c)(7)(i) applies only to
“foreign” related parties.
(v) Application of “U.S.-Connected Products or Services.” The taxpayer is to make
the following adjustments in determining U.S.-connected products or services:
- Gross up all licensing amounts to reflect the rights or assets giving rise to the li-
censing amounts. - Gross up all lease amounts to reflect the assets giving rise to the leasing amounts.
Licensing and leasing are often determined on a net basis. Information requested here
is designed to better equate licensing and leasing with the sale of goods.
(vi) Industry Segment. Industry segment means a segment of the related-party
group’s combined operations that is engaged in providing a product or service, or a
group of related products or services, where the product or service is directed prima-
rily to customers that are not members of the related-party group. The definition of
“industry segment” is taken from the definition of industry segment in Treasury Reg-
ulation Section1.6038A-3(c)(7)(ii).
(vii) Gross Revenues of an Industry Segment. Gross revenues of an industry segment
means gross receipts in the nature of earning gross income that pertain to that seg-
29 • 28 TRANSFER PRICING FOR INTERCOMPANY TRANSACTIONS