§ 1.482-9(l)(5) Example 6.

Category: (l) Controlled services transaction, Transfer Pricing Guidelines, US IRC Section 482 on Transfer Pricing, § 1.482-9 Methods to determine taxable income in connection with a controlled services transaction | Tag: , ,
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Duplicative activities.

Company X’s in-house legal staff has specialized expertise in several areas, including intellectual property. The intellectual property legal staff specializes in technology licensing, patents, copyrights, and negotiating and drafting intellectual property agreements. Company Y is involved in negotiations with an unrelated party to enter into a complex joint venture that includes multiple licenses and cross-licenses of patents and copyrights. Company Y retains outside counsel that specializes in intellectual property law to review the transaction documents. Company Y does not have in-house counsel of its own to review intellectual property transaction documents. Outside counsel advises that the terms for the proposed transaction are advantageous to Company Y and that the contracts are valid and fully enforceable. Company X’s intellectual property legal staff possess valuable knowledge of Company Y’s patents and technological achievements. They are capable of identifying particular scientific attributes protected under patent that strengthen Company Y’s negotiating position, and of discovering flaws in the patents offered by the unrelated party. To reduce risk associated with the transaction, Company X’s intellectual property legal staff reviews the transaction documents before Company Y executes the contracts. Company X’s intellectual property legal staff also separately evaluates the patents and copyrights with respect to the licensing arrangements and concurs in the opinion provided by outside counsel. The activities performed by Company X substantially duplicate the legal services obtained by Company Y, but they also reduce risk associated with the transaction in a way that confers an additional benefit on Company Y.






Related Guidelines

  1. TPG2022 Chapter VII paragraph 7.15In considering whether a charge for the provision of services would be made between independent enterprises, it would also be relevant to consider the form that an arm’s length consideration would take had the transaction occurred between independent enterprises dealing at arm’s length....
  2. TPG2022 Chapter VII paragraph 7.50The following examples illustrate an important element of the definition of low value-adding intra-group services, namely, that they should not include services which are part of the MNE’s core business. Services that may seem superficially similar in nature (in the example, credit risk...
  3. TPG2022 Chapter VII paragraph 7.12There are some cases where an intra-group service performed by a group member such as a shareholder or coordinating centre relates only to some group members but incidentally provides benefits to other group members. Examples could be analysing the question whether to reorganise...
  4. TPG2022 Chapter I paragraph 1.84 (Example 2)Company B manufactures products for Company A. Under step 1 capacity utilisation risk and supply chain risk have been identified as economically significant in this transaction, and under step 2 it has been established that under the contract Company A assumes these risks....
  5. TPG2022 Chapter I paragraph 1.70Assume that an investor hires a fund manager to invest funds on its account. Depending on the agreement between the investor and the fund manager, the latter may be given the authority to make portfolio investments on behalf of the investor on a...
  6. TPG2022 Chapter I paragraph 1.147Under the guidance in this section, the transaction should not be recognised. S1 is treated as not purchasing insurance and its profits are not reduced by the payment to S2; S2 is treated as not issuing insurance and therefore not being liable for...
  7. TPG2022 Chapter VII paragraph 7.42Another example of intra-group services is the administration of licences. The administration and enforcement of intangible property rights should be distinguished from the exploitation of those rights for this purpose. The protection of a licence might be handled by a group service centre...
  8. TPG2022 Chapter I paragraph 1.85 (Example 3)Company A has acquired ownership of a tangible asset and enters into contracts for the use of the asset with unrelated customers. Under step 1 utilisation of the tangible asset, that is the risk that there will be insufficient demand for the asset...
  1. OECD publishes Guidance on the Handling of Multilateral MAPs and APAs1 February 2023 OECD published guidance on Multilateral MAP and APAs. The Manual is intended as a guide to multilateral MAP and APA processes from both a legal and procedural perspective and provides tax administrations and taxpayers with information on the operation of...
  2. United Arab Emirates issues comprehensive Transfer Pricing Guide23 October 2023, the United Arab Emirates issued a comprehensive practical Transfer Pricing Guide. The guide is designed to provide general guidance on the Transfer Pricing regime in the UAE with a view to making the provisions of the Transfer Pricing regulations as...

Related Case Law

  1. Finland vs Corp, September 2017, HFD:2017:145Ruling by the Finnish Supreme Administrative Court on enterprise resource planning and intra-group services arrangements. A Oyj had provided its subsidiaries with supply chain services, marketing and brand management services as well as personnel and computer services. The services offered by A Plc...
  2. India vs. Gemplus India Pvt. Ltd. March 2009, ITA case no. 352Gemplus India Pvt. Ltd. is a part of the Gemplus group, engaged in providing smart card solutions for the telecommunications industry, financial services industry and other e-businesses. The company entered into a intra group management services agreement for receipt of services in marketing...
  3. Romania vs A. Romania S.R.L., April 2021, Supreme Administrative Court, Case No 2644/2021A. Romania S.R.L. had purchased services from A. Nederland BV and A. CZ Holding sro, and the costs of the services had been deducted for tax purposes. At issue was whether these services had actually been provided to the benefit of A. Romania...
  4. Poland vs R. S.A., March 2023, Supreme Administrative Court, Cases No II FSK 2290/20In its application for an individual interpretation, R. S.A. stated that it distributes fast moving goods in Poland, Lithuania, Latvia and Estonia. It purchases these goods from the company E. based in H. and sells them to independent wholesale distributors and retailers. At...