![]() purposes, especially in circumstances where IRS refuses access to the mutual agreement procedure of the applicable tax treaty and company as non-compulsory (and therefore non-creditable) prior to adjudication of the transfer pricing issues that might reduce the income of the branch for U.S. That the IRS cannot treat foreign income tax paid by a foreign branch of a U.S.That a court may not be willing to evaluate the combined profits of all foreign related entities in reviewing adjustments relating only to some of those foreign entities (taking a different tack than a 2012 Canadian Supreme Court decision ).That a transfer pricing method (“TPM”) provided in a closing agreement for prior years (1986-1995) generally will not bind the IRS for later years (2007-09), regardless of whether the taxpayer consistently applied the TPM during the intervening period.The case involves numerous other important determinations: As the court emphasized, doing so would have been inconsistent with the form of the taxpayer’s own transactions, and in the circumstances of this case, could not be legally supported. parent company (which did have legal ownership). Judge Lauber refused to treat foreign affiliated “supply points” as beneficial owners of intangible property or as owners of discrete derivative assets, when the supply points lacked legal ownership of the intangibles and had only short-term contracts with the U.S. As we explain below, the court may in fact have gone too far in this effort by suggesting that it would disallow even a risk-adjusted return to the cash box.īoth of these apparent shifts in approach turn on a core conceptual underpinning of the case – the central importance of legal ownership in allocating profits from intangible property. While the court did not expressly adopt DEMPE (or even mention it), its reasoning reflects an unwillingness to allow a mere cash box, with no real decision making ability or authority, to earn non-routine profits from its cash funding. Perhaps more fundamentally, the court’s decision seems to embrace substance concepts akin to the OECD’s “DEMPE” doctrine. As should be the case in transfer pricing, the facts mattered. Our view is that the Coca-Cola court’s acceptance of the CPM is not a departure from precedent, because it turns on findings of fact which, unlike in other recent decisions, allowed for the application of the CPM. ![]() This view arose in recent years when, in case after case, the Tax Court rejected IRS applications of the CPM (a method analogous to the OECD’s Transactional Net Margin Method) and other profits based methods in favor of the comparable uncontrolled transactions (“CUT”) method. The decision is a watershed not only because it is the biggest IRS win in decades, but because it debunks the myth that the Tax Court is uncomfortable accepting IRS adjustments based on applications of the comparable profits method (the “CPM”) and other profits-based methods. $7 billion in transfer pricing adjustments over three taxable years (2007-09), with more at stake for later years. The taxpayer must include in income more than U.S. Internal Revenue Service (“IRS”) on most issues, including those for which the most dollars were at stake. ![]() Writing for the court, Judge Albert Lauber ruled for the U.S. Commissioner marks an inflection point in U.S. The United States Tax Court’s Novemopinion in The Coca-Cola Company & Subsidiaries v. Below is the full article, and please visit this link to view the article as it appears on IBFD's website. Clark Armitage, Heather Schafroth, Elizabeth Stevens, and David Rosenbloom authored the Januarticle "Coke Concentrate: A Recipe for Understanding the IRS’s Biggest Win in 40 Years" for IBFD International Transfer Pricing Journal Volume 28, No.2.
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