US vs Xilinx Inc, May 27, 2009, Court of Appeal

Category: Cost Contribution Arrangements | Tag: , , ,
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In a decision the IRS determined that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation.

The United States Tax Court overruled the IRS, finding that in an arm’s-length situation, unrelated parties would not allocate employee stock option costs in the way determined by the IRS.

The Court of Appeals later in 2009 overruled the opinion of the tax court, and found in favor of the IRS.

US-vs-XILINX-INC-CIR06-74246






Related Guidelines

  1. TPG2022 Chapter VIII paragraph 8.30It is important that the evaluation process recognises all contributions made by participants to the arrangement. This includes contributions made by one or more parties at the inception of the CCA (such as contributions of pre-existing intangibles) as well as contributions made on...
  2. TPG2022 Chapter VIII paragraph 8.8As an illustration of a CCA, take the example of an MNE group which manufactures products through three enterprises which each operate a production site and have their own R&D teams engaged in various projects to improve production processes. Those three enterprises enter...
  3. TPG2022 Chapter VIII Annex example 11. Example 1 illustrates the general principle that contributions should be assessed at value (i.e. based on arm’s length prices) in order to produce results that are consistent with the arm’s length 2. Company A and Company B are members of an MNE...
  4. TPG2022 Chapter VIII paragraph 8.1This chapter discusses cost contribution arrangements (CCAs) between two or more associated enterprises. The purpose of the chapter is to provide some general guidance for determining whether the conditions established by associated enterprises for transactions covered by a CCA are consistent with the...
  5. TPG2022 Chapter VIII paragraph 8.19The relative shares of expected benefits might be estimated based on the anticipated additional income generated or costs saved or other benefits received by each participant as a result of the arrangement. An approach that is frequently used in practice, most typically for...
  6. TPG2022 Chapter VIII paragraph 8.29Since contributions are based on expected benefits, this generally implies that where a cost reimbursement basis for valuing current contributions is permitted, the analysis should initially be based on budgeted costs. This does not necessarily mean fixing the costs, since the budget framework...
  7. TPG2022 Chapter VIII Annex example 1a8. The facts are the same as Example 1. In accordance with the guidance in paragraph 8.27, an alternative way to achieve the identical result under Example 1 is through the use of a two-step process as set out below 9. Step 1...
  8. TPG2022 Chapter VIII paragraph 8.27While all contributions should be measured at value (but see paragraph 8.28 below), it may be more administrable for taxpayers to pay current contributions at cost. This may be particularly relevant for development CCAs. If this approach is adopted, the pre-existing contributions should...
  1. April 2019: UN Manual – Financial Transactions and Profit SplitsA new version of the UN Practical Manual on Transfer Pricing for Developing Countries is due by 2021. According to the mandate the new manual will make further improvements in usability and practical relevance, updates and improvements to existing text, including on Country...
  2. OECD releases the report on Amount B of Pillar OneOn 19 February 2024, the OECD/G20 Inclusive Framework on BEPS released the report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular...

Related Case Law

  1. US vs Microsoft, May 2017, US District CourtIn an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents...
  2. Norway vs A/S Norske Shell, May 2020, Supreme Court, Case No HR-2020-1130-AA / S Norske Shell runs petroleum activities on the Norwegian continental shelf. By the judgment of the Court of Appeal in 2019, it had been decided that there was a basis for a discretionary tax assessment pursuant to section 13-1 of the...
  3. Spain vs EPSON IBÉRICA S.A.U., March 2021, Supreme Court, Case No 390:2021The SEIKO EPSON CORPORATION is a multinational group of Japanese origin active in among others areas, production and sale of computer products. The group is present in Spain, EPSON IBÉRICA, but has its European HQ in the Netherlands, EPSON EUROPE BV. The main...
  4. US vs Medtronic, August 2022, U.S. Tax Court, T.C. Memo. 2022-84Medtronic had used the comparable uncontrolled transactions (CUT) method to determine the arm’s length royalty rates received from its manufacturing subsidiary in Puerto Rico for use of IP under an inter-group license agreement. The tax authorities found that Medtronic left too much profit...