OECD Transfer Pricing Guidelines (2017)

TPG2017 Chapter IV Annex I

Annex I to Chapter IV

Sample Memoranda of Understanding for Competent Authorities to Establish Bilateral Safe Harbours

Introduction

This Annex contains sample Memoranda of Understanding (MOUs) for use by Competent Authorities in negotiating bilateral safe harbours for common categories of transfer pricing cases involving low risk distribution functions, low risk manufacturing functions, and low risk research and development functions. It is intended to provide countries with a tool to adapt and use in addressing, through bilateral safe harbours, important classes of transfer pricing cases that now take up a great deal of time and effort when processed on a case by case basis. Competent authorities are of course free to modify, add or delete any provision of the sample agreement when concluding their own bilateral agreements.

Reasons for Concluding a Bilateral Safe Harbour MOU

As described in Chapter IV, Section E.4 of these Guidelines, one of the potential problems arising from the use of unilateral transfer pricing safe harbours is that they may increase the risk of double taxation and double non-taxation. This can occur if the country granting the unilateral safe harbour shades the safe harbour towards the high end of an acceptable arm’s length profit range, while a treaty partner on the other end of the transaction disagrees with the assertion that the defined safe harbour profit level reflects arm’s length dealing. Some critics contend that there is a tendency for safe harbour profit ranges to increase over time, exacerbating this potential problem. It is also sometimes suggested that unilateral safe harbours can tend to force taxpayers into reporting higher than arm’s length levels of income, and to incur some resulting double taxation, as the price to be paid for administrative convenience and simplicity. Finally, unilateral safe harbours can, at times, provide a windfall to taxpayers whose specific facts might suggest that income above the safe harbour level would be more consistent with arm’s length dealing.

These double tax and windfall issues would likely be quite pronounced in connection with safe harbours directed at some of the most common types of transfer pricing transactions. Transactions such as sales of goods to a local distribution affiliate for resale on a limited risk basis in the local market, contract manufacturing arrangements, and contract research arrangements could clearly raise these issues. It is perhaps for this reason that few countries, if any, have developed functioning safe harbours for dealing with these common types of transfer pricing issues.

Distribution margins and manufacturing mark-ups can sometimes be quite consistent across geographies and across many industries. Therefore guidance on normal settlement ranges for these types of cases could have the effect of reducing the number of transfer pricing audits and reducing competent authority dockets and other transfer pricing controversy by a substantial margin if reasonable ranges of results could be agreed bilaterally and published.

These types of cases could potentially be addressed through bilateral MOUs adopted and publicised by competent authorities. Some countries have adopted such arrangements on a bilateral basis. The general view of such countries is that treaty provisions based on Article 25(3) of the OECD Model Tax Convention provide sufficient authority to support a bilateral competent authority agreement on a safe harbour rule that would apply to numerous similarly situated taxpayers. Article 25(3) provides: “The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.” A competent authority agreement on a bilateral transfer pricing safe harbour should properly be characterised as a “mutual agreement” that “resolves difficulties or doubts arising as to the interpretation or application” of Article 9 of the Treaty.

Although nothing would prevent the countries’ competent authorities from adopting safe harbour provisions under Article 25(3) on a multilateral basis if the conditions and circumstances so allow, the particular types of transactions described above are such that countries will often adopt a bilateral approach.

If such MOUs existed, qualifying taxpayers would be able to manage their financial results to fall within the agreed safe harbour range, secure in the understanding that those results would be accepted in both countries agreeing to the MOU concerned. A commonly cited precedent for this type of approach is the agreement between the United States and Mexico regarding safe harbour profit ranges for maquiladora operations.

A bilateral approach to the development of safe harbours would have a number of advantages over unilateral transfer pricing safe harbours:

  • A bilateral approach executed through competent authority MOUs could increase the likelihood that safe harbour provisions do not result in double taxation or double non-taxation.
  • Bilateral safe harbours could be tailored to the economics of a particular market and circumstances, and thus be compatible with the arm’s length principle.
  • Bilateral safe harbours could be entered into on a selective basis with countries having similar tax rates, thus minimising the possibility that the safe harbour provision itself would create opportunities for transfer pricing manipulation and providing a means for limiting the application of the safe harbour to situations where transfer pricing risk is quite low.
  • If the relevant countries desire, bilateral safe harbours could initially be limited to small taxpayers and/or small transactions in order to limit exposures to government tax revenue that might otherwise be created by the safe harbour.
  • Safe harbours adopted by means of a competent authority MOU could be reviewed and modified from time to time by competent authority agreement, thus assuring that the provisions stay up to date and reflect developments in the broader economy.
  • For developing countries with serious resource constraints, bilateral MOUs entered into with a number of treaty partners could provide a means of protecting the local tax base in common transfer pricing fact patterns without an inordinate enforcement effort.

The following elements may be of relevance in the negotiation and conclusion of an MOU.

1)    Description of and criteria to be fulfilled by the qualifying enterprises. These could include:

  1. a) A description of the functions required to be performed (or to be disallowed) as a condition to application of the safe harbour;
  2. b) The risks to be assumed by the participating enterprises as a condition to application of the safe harbour;
  3. c) The mix of assets permitted to be used by the participating enterprises as a condition of application of the safe harbour;
  4. d) A description of classes of entities excluded from the safe harbour provision (by virtue of size, industry, etc.).

2)              Description of the qualifying transactions covered by the MOU;

3)              Determination of the arm’s length range of tested party compensation;

4)              The years to which the MOU applies;

5)    Statement that the MOU is binding on both of the tax administrations involved;

6)    Reporting and monitoring procedures for the MOU;

7)              Documentation and information to be maintained by the participating enterprises:

8)    A mechanism for resolving disputes;

Set forth below are sample MOUs for three types of transactions: (i) performance of low risk manufacturing services; (ii) performance of low risk distribution services; and (iii) performance of low risk contract research and development services.

Sample Memorandum of Understanding on Low Risk Manufacturing Services

Preamble

  1. The Competent Authorities of [State A] and [State B] have reached an understanding relating to the arm’s length remuneration applicable to low risk manufacturing services performed by a Qualifying Enterprise resident in [State A] on behalf of an associated enterprise resident in [State B], and by a Qualifying Enterprise resident in [State B] on behalf of an associated enterprise resident in [State A] in the circumstances described herein. The purpose of this memorandum of understanding is to provide legal certainty to Qualifying Enterprises by establishing specific procedures to comply with the transfer pricing rules in [State A] and [State B] and to eliminate double taxation.
  2. This memorandum of understanding is entered into under authority of Article [25] of the [Tax Treaty] (the “Treaty”) between [State A] and [State B]. It implements the principles of Article [9] of the Treaty in the circumstances described herein. It applies to taxable years of Qualifying Enterprises ending in calendar years [20 ] through [20 ]. This term will be extended for another five years unless either State notifies the other, in writing, of its intent to terminate this memorandum of understanding on or prior to December 31 [20          ]. Expiration of this memorandum of understanding will have effect for taxable years of Qualifying Enterprises ending after the last day of the calendar year in which the application of this memorandum of understanding terminates.
  3. For purposes of this memorandum of understanding, an “enterprise” means the enterprise defined in Article [3], paragraph [1] of the Treaty.

Qualifying Enterprise

  1. For purposes of this memorandum of understanding, a Qualifying Enterprise must have each of the characteristics described in this paragraph.

(a)  The Qualifying Enterprise shall be a resident of a Contracting State for purposes of the Treaty and shall conduct business operations predominantly in such State.

(b)  The principal business activity of the Qualifying Enterprise shall be either the performance of manufacturing services in its State of residence on behalf of an associated enterprise (within the meaning of Article [9] of the Treaty) resident in the other Contracting State, or alternatively, the production of manufactured products for sale to such associated enterprise.

(c)  The Qualifying Enterprise shall have entered into a written agreement with the associated enterprise, prior to the commencement of the relevant taxable year of the Qualifying Enterprise, pursuant to which the associated enterprise assumes the principal business risks associated with the manufacturing activities of the Qualifying Enterprise and agrees to compensate the Qualifying Enterprise for its manufacturing activities at levels consistent with this memorandum of understanding.

(d)  Annual research, development, and product engineering expense of the Qualifying Enterprise shall, in the aggregate, be less than [—] percent of its net sales revenue.

(e)  The Qualifying Enterprise shall not engage in advertising, marketing and distribution functions, credit and collection functions, or warranty administration functions with regard to the products it manufactures.

(f)  The Qualifying Enterprise shall not retain title to finished products after they leave its factory, shall not bear any transportation or freight expense with respect to such finished products, and shall not bear any risk of loss with respect to damage or loss of finished products in transit.

(g)  The Qualifying Enterprise shall not engage in managerial, legal, accounting, or personnel management functions other than those directly related to the performance of its manufacturing activities.

(h)  At least [—] percent of the assets of the Qualifying Enterprise shall consist of manufacturing plant and equipment, raw material inventory, and work in process inventory, calculated on the basis of the average of assets held on the last day of each of the four quarterly periods during the relevant taxable year of the Qualifying Enterprise.

(i)   The finished product inventory of the Qualifying Enterprise shall not exceed [—] percent of the annual net sales of the Qualifying Enterprise, calculated on an average asset basis in the manner described in paragraph (h) above.

  1. A Qualifying Enterprise may not:

(a)  Conduct its principal business activity in any of the following industries: [—].

(b)  Have annual net sales in excess of [—].

(c)  Have total assets in excess of [—].

(d)  Derive more than [—] percent of its net revenues from transactions other than Qualifying Transactions.

(e)  Have undergone a transfer pricing audit in either [State A] or [State B] within the past [—] years which resulted in adjustments in excess of [—].

Qualifying Transactions

  1. For purposes of this memorandum of understanding, a Qualifying Transaction shall be (i) the rendering of manufacturing services by the Qualifying Enterprise on behalf of an associated enterprise resident in the other Contracting State and/or (ii) the sale of manufactured products produced by the Qualifying Enterprise to an associated enterprise resident in the other Contracting State, in each case without the interposition of other transactions or parties.

Determination of the Taxable Income of the Qualifying Enterprise

7.  In the event a Qualifying Enterprise elects to apply the provisions of this memorandum of understanding:

  1. a) In the event the Qualifying Enterprise holds title to raw materials and work in process inventory related to the Qualifying Transactions, the net income before tax of the Qualifying Enterprise with respect to its Qualifying Transactions for the taxable year shall be in the range of [equal to] [ __ to __ ] percent of the total costs of the QualifyingEnterprise, excluding from the base for computing the profit percentage only net interest expense, currency gain or loss, and any non-recurring costs.
  2. b) In the event the associated enterprise holds title to raw materials and work in process inventory related to the Qualifying Transactions, the net income before tax of the Qualifying Enterprise with respect to the Qualifying Transactions for the taxable year shall be in the range of [equal to] [ to                  ] percent of the total costs of the Qualifying Enterprise, excluding from the base for computing the profit percentage only net interest expense, currency gain or loss, and any non-recurring costs.
  3. c) Accounting terms utilised in this memorandum of understanding shall be defined in accordance with generally accepted financial accounting principles in the residence country of the Qualifying Enterprise.
  4. Each of [State A] and [State B] agree that compensation for Qualifying Transactions calculated in accordance with this memorandum of understanding shall be deemed to constitute an arm’s length level of compensation for purposes of applying the transfer pricing rules of such State and the provisions of Article [9] of the Treaty.

Permanent Establishment

  1. The Competent Authorities of [State A] and [State B] agree that the associated enterprise which is party to a Qualifying Transaction shall not be deemed to have a permanent establishment in the country of residence of the Qualifying Enterprise by virtue of the performance of low risk manufacturing services on its behalf by the Qualifying Enterprise or by virtue of such associated enterprise taking title to products produced by the Qualifying Enterprise in the country of residence of the Qualifying Enterprise.

Election and Reporting Requirements

  1. A Qualifying Enterprise and the relevant associated enterprise may elect to apply the provisions of this memorandum of understanding consistently in [State A] and [State B] by filing a notice with [—] of [State A] and [—] of [State B] no later than [—] covering the Qualifying Transactions.
  2. The required notice shall include:
  • An affirmative statement that the taxpayers intend to apply and be bound by this memorandum of understanding [for the current year] [for a period of (—) years beginning with the current year];
  • An affirmative statement that income and expense from Qualifying Transactions will be reported on a consistent basis in [State A] and [State B] in accordance with this agreement;
  • A narrative description of the Qualifying Transactions;
  • Identification of each of the associated enterprises that are parties to the Qualifying Transactions;
  • Audited financial statements of the Qualifying Enterprise for the relevant year and sufficient additional financial and accounting information to demonstrate the status of the Qualifying Enterprise as a Qualifying Enterprise;
  • A detailed calculation of the income of the Qualifying Enterprise from Qualifying Transactions applying the principles of this memorandum of understanding;
  • A statement that the Qualifying Enterprise will respond within 60 days to any request of the tax authority of its residence country for information deemed necessary by such tax authority to verify qualification of the enterprise for treatment under this memorandum of understanding;
  1. Satisfaction of the election and reporting requirements of this memorandum of understanding, and reporting income calculated in accordance with its terms in a timely filed tax return for the year, shall relieve the Qualifying Enterprise and its relevant associated enterprise from the obligation to comply with the otherwise applicable transfer pricing documentation requirements of [State A] and [State B] with respect to the Qualifying Transactions.
  2. A Qualifying Enterprise and its relevant associated enterprise not electing treatment of their Qualifying Transactions under this memorandum of understanding shall be subject to the application of the transfer pricing and documentation rules of [State A] and [State B] as if this memorandum of understanding were not in force.
  3. All disputes with regard to the application of this memorandum of understanding shall be referred to the competent authorities of [State A] and [State B] for resolution by mutual agreement.
  4. The competent authorities of [State A] and [State B] may exchange information where necessary to carry out this agreement under the provisions of Article [26] of the Treaty.

Termination of the Agreement

  1. Either [State A] or [State B] may terminate this memorandum of understanding at any time upon written notice to the competent authority of the other Contracting State and publication of such notice. Such termination will have effect for taxable years of Qualifying Enterprises beginning after the last day of the calendar year in which delivery and publication of such notice of termination occurs.

Sample Memorandum of Understanding on Low Risk Distribution Services

Preamble

  1. The Competent Authorities of [State A] and [State B] have reached an understanding relating to the arm’s length remuneration applicable to low risk distribution services performed by a Qualifying Enterprise resident in [State A] on behalf of an associated enterprise resident in [State B], and by a Qualifying Enterprise resident in [State B] on behalf of an associated enterprise resident in [State A] in the circumstances described herein. The purpose of this memorandum of understanding is to provide legal certainty to Qualifying Enterprises by establishing specific procedures to comply with the transfer pricing rules in [State A] and [State B] and to eliminate double taxation.
  2. This memorandum of understanding is entered into under authority of Article [25] of the [Tax Treaty] (the “Treaty”) between [State A] and [State B]. It implements the principles of Article [9] of the Treaty in the circumstances described herein. It applies to taxable years of Qualifying Enterprises ending in calendar years [20 ] through [20 ]. This term will be extended for another five years unless either State notifies the other, in writing, of its intent to terminate this memorandum of understanding on or prior to December 31 [20          ]. Expiration of this memorandum of understanding will have effect for taxable years of Qualifying Enterprises ending after the last day of the calendar year in which the application of this memorandum of understanding terminates.
  3. For purposes of this memorandum of understanding, an “enterprise” means the enterprise defined in Article [3], paragraph [1] of the Treaty.

Qualifying Enterprise

  1. For purposes of this memorandum of understanding, a Qualifying Enterprise must have each of the characteristics described in this paragraph.

(a)  The Qualifying Enterprise shall be a resident of a Contracting State for purposes of the Treaty and shall conduct business operations predominantly in such State.

(b)  The principal business activity of the Qualifying Enterprise shall be either the performance of marketing and distribution services in its State of residence on behalf of an associated enterprise (within the meaning of Article [9] of the Treaty) resident in the other Contracting State, or alternatively, the purchase by the Qualifying Enterprise of products from an associated enterprise resident in the other Contracting State for resale to unrelated customers in its country of residence.

(c)  The Qualifying Enterprise shall have entered into a written agreement with the associated enterprise, prior to the commencement of the relevant taxable year of the Qualifying Enterprise, pursuant to which the associated enterprise assumes the principal business risks associated with the marketing and distribution activities of the Qualifying Enterprise and agrees to assure that the Qualifying Enterprise is compensated for its marketing and distribution activities at levels consistent with this memorandum of understanding.

(d)  Annual research, development, and product engineering expense of the Qualifying Enterprise shall, in the aggregate, be less than [—] percent of its net sales revenue.

(e)  The Qualifying Enterprise shall not engage in manufacturing or assembly functions with regard to the products it markets and distributes.

(f)  The total marketing and advertising expense of the Qualifying Enterprise shall not exceed [—] percent of its net sales.

(g)  The Qualifying Enterprise shall not engage in managerial, legal, accounting, or personnel management functions other than those directly related to the performance of its marketing and distribution activities.

(h)  The finished product inventory of the Qualifying Enterprise shall not exceed [—] percent of the annual net sales of the Qualifying Enterprise, calculated on the basis of the average inventory held on the last day of each of the four quarterly periods during the relevant taxable year of the Qualifying Enterprise.

  1. A Qualifying Enterprise may not:

(a)  Conduct its principal business activity in any of the following industries: [—].

(b)  Have annual net sales in excess of [—].

(c)  Have total assets in excess of [—].

(d)  Derive more than [—] percent of its net revenues from transactions other than Qualifying Transactions.

(e)  Have undergone a transfer pricing audit in either [State A] or [State B] within the past [—] years which resulted in adjustments in excess of [—].

Qualifying Transactions

  1. For purposes of this memorandum of understanding, a Qualifying Transaction shall be (i) the rendering of marketing and distribution services by the Qualifying Enterprise on behalf of an associated enterprise resident in the other Contracting State and/or (ii) the sale of products to unrelated customers purchased by the Qualifying Enterprise from an associated enterprise resident in the other Contracting State, in each case without the interposition of other transactions or parties.

Determination of the Taxable Income of the Qualifying Enterprise

  1. In the event a Qualifying Enterprise elects to apply the provisions of this memorandum of understanding:

(a)  The net income before tax of the Qualifying Enterprise with respect to its Qualifying Transactions for the taxable year shall be in the range of [equal to] [                      to                  ] percent of the total net sales of the Qualifying Enterprise.

(b)  Accounting terms utilised in this memorandum of understanding shall be defined in accordance with generally accepted financial accounting principles in the residence country of the Qualifying Enterprise.

  1. Each of [State A] and [State B] agree that compensation for Qualifying Transactions calculated in accordance with this memorandum of understanding shall be deemed to constitute an arm’s length level of compensation for purposes of applying the transfer pricing rules of such State and the provisions of Article [9] of the Treaty.

Permanent Establishment

  1. The Competent Authorities of [State A] and [State B] agree that the associated enterprise that is party to a Qualifying Transaction shall not be deemed to have a permanent establishment in the country of residence of the Qualifying Enterprise by virtue of the performance of low risk marketing and distribution services on its behalf by the Qualifying Enterprise or by virtue of the Qualifying Enterprise purchasing products from such associated enterprise in Qualifying Transactions for resale to unrelated customers.

Election and Reporting Requirements

  1. A Qualifying Enterprise and the relevant associated enterprise may elect to apply the provisions of this memorandum of understanding consistently in [State A] and [State B] by filing a notice with [—] of [State A] and [—] of [State B] no later than [—] covering the Qualifying Transactions.
  2. The required notice shall include:
  • An affirmative statement that the taxpayers intend to apply and be bound by this memorandum of understanding [for the current year] [for a period of (—) years beginning with the current year];
  • An affirmative statement that income and expense from Qualifying Transactions will be reported on a consistent basis in [State A] and [State B] in accordance with this agreement;
  • A narrative description of the Qualifying Transactions;
  • Identification of each of the associated enterprises that are parties to the Qualifying Transactions;
  • Audited financial statements of the Qualifying Enterprise for the relevant year and sufficient additional financial and accounting information to demonstrate the status of the Qualifying Enterprise as a Qualifying Enterprise;
  • A detailed calculation of the income of the Qualifying Enterprise from Qualifying Transactions applying the principles of this memorandum of understanding;
  • A statement that the Qualifying Enterprise will respond within 60 days to any request of the tax authority of its residence country for information deemed necessary by such tax authority to verify qualification of the enterprise for treatment under this memorandum of understanding;
  1. Satisfaction of the election and reporting requirements of this memorandum of understanding, and reporting income calculated in accordance with its terms in a timely filed tax return for the year, shall relieve the Qualifying Enterprise and its relevant associated enterprise from the obligation to comply with the otherwise applicable transfer pricing documentation requirements of [State A] and [State B] with respect to the Qualifying Transactions.
  2. A Qualifying Enterprise and its relevant associated enterprise not electing treatment of their Qualifying Transactions under this memorandum of understanding shall be subject to the application of the transfer pricing and documentation rules of [State A] and [State B] as if this memorandum of understanding were not in force.
  3. All disputes with regard to the application of this memorandum of understanding shall be referred to the competent authorities of [State A] and [State B] for resolution by mutual agreement.
  4. The competent authorities of [State A] and [State B] may exchange information where necessary to carry out this agreement under the provisions of Article [26] of the Treaty.

Termination of the Agreement

  1. Either [State A] or [State B] may terminate this memorandum of understanding at any time upon written notice to the competent authority of the other Contracting State and publication of such notice. Such termination will have effect for taxable years of Qualifying Enterprises beginning after the last day of the calendar year in which delivery and publication of such notice of termination occurs.

Sample Memorandum of Understanding on Low Risk Research and Development Services

Preamble

  1. The Competent Authorities of [State A] and [State B] have reached an understanding relating to the arm’s length remuneration applicable to low risk research and development services performed by a Qualifying Enterprise resident in [State A] on behalf of an associated enterprise resident in [State B], and by a Qualifying Enterprise resident in [State B] on behalf of an associated enterprise resident in [State A] in the circumstances described herein. The purpose of this memorandum of understanding is to provide legal certainty to Qualifying Enterprises by establishing specific procedures to comply with the transfer pricing rules in [State A] and [State B] and to eliminate double taxation.
  2. This memorandum of understanding is entered into under authority of Article [25] of the [Tax Treaty] (the “Treaty”) between [State A] and [State B]. It implements the principles of Article [9] of the Treaty in the circumstances described herein. It applies to taxable years of Qualifying Enterprises ending in calendar years [20 ] through [20 ]. This term will be extended for another five years unless either State notifies the other, in writing, of its intent to terminate this memorandum of understanding on or prior to December 31 [20          ]. Expiration of this memorandum of understanding will have effect for taxable years of Qualifying Enterprises ending after the last day of the calendar year in which the application of this memorandum of understanding terminates.
  3. For purposes of this memorandum of understanding, an “enterprise” means the enterprise defined in Article [3], paragraph [1] of the Treaty.

Qualifying Enterprise

  1. For purposes of this memorandum of understanding, a Qualifying Enterprise must have each of the characteristics described in this paragraph.

(a) The Qualifying Enterprise shall be a resident of a Contracting State for purposes of the Treaty and shall conduct business operations predominantly in such State.

(b)  The principal business activity of the Qualifying Enterprise shall be the performance of research and development services in its State of residence on behalf of an associated enterprise (within the meaning of Article [9] of the Treaty) resident in the other Contracting State.

(c)  The Qualifying Enterprise shall have entered into a written agreement with the associated enterprise, prior to the commencement of the relevant taxable year of the Qualifying Enterprise, pursuant to which: (i) the associated enterprise assumes the principal business risks associated with the research and development services of the Qualifying Enterprise, including the risk that the research and development will not be successful; (ii) the Qualifying Enterprise agrees that all interests in intangibles developed through its research and development services shall belong to the associated enterprise; and (iii) the associated enterprise agrees to compensate the Qualifying Enterprise for its research and development services at levels consistent with this memorandum of understanding.

(d)  The Qualifying Enterprise shall not engage in product manufacturing and assembly functions, advertising, marketing and distribution functions, credit and collection functions, or warranty administration functions.

(e)  The Qualifying Enterprise shall not utilise proprietary patents, know-how, trade secrets, or other intangibles in performing its research and development services other than those made available to it by the associated enterprise.

(f)  The Qualifying Enterprise shall not engage in managerial, legal, accounting, or personnel management functions other than those directly related to the performance of its research and development services.

(g)  The research and development programme carried out by the Qualified Enterprise shall be designed, directed and controlled by the associated enterprise.

  1. A Qualifying Enterprise may not:

(a)  Conduct its principal business activity in any of the following industries: [—].

(b)  Have annual payroll and other operating expenses in excess of [—].

(c)  Have total assets in excess of [—].

(d)  Derive more than [—] percent of its net revenues from transactions other than Qualifying Transactions.

(e)  Have undergone a transfer pricing audit in either [State A] or [State B] within the past [—] years which resulted in adjustments in excess of [—].

Qualifying Transactions

  1. For purposes of this memorandum of understanding, a Qualifying Transaction shall be