The result of adding the mark-up to the above costs may he regarded as an
arm's-length price of the original controlled transaction.
company, the PATA documentation package guidelines may be irrelevant or inapposite in establishing that the taxpayer has undertaken reasonable steps to comply with the
arm's-length standard, maintained adequate documentation in support of the
arm's-length nature of its controlled transactions, or whether a documentation penalty should apply.
The comments warn that to implement procedures under section 482 that are not fully consistent with the
arm's-length standard could expose U.S.
1.482-3(a), the most commonly accepted methods for obtaining an
arm's-length price are the: (1) comparable uncontrolled price (CUP) method; (2) resale price (RP) method; (3) cost plus (CP) method; (4) comparable profits method; and (5) profit split (PS) method.
Either this suggests that any secondment involving services of benefit to the subsidiary is covered and thus subject to the
arm's-length standard or the Guidelines have simply skipped over the preliminary question of whether a service has been provided by someone other than the receiving company.
Because a company's intangible resources often are what separate it from the competition, it seems incomprehensible to remove from the balance sheet an item that results from an
arm's-length transaction and must have some future value, or the acquiring company would be throwing away valuable resources.
(46) Various exceptions, including valid business purpose and
arm's-length payments, apply.
The transfer-pricing legislation itself provides precious little guidance about the documentation that taxpayers are expected to create and maintain in order to establish the
arm's-length nature of their prices.
Although the terminology is different, the new rules continue the current regulations'
arm's-length standard.
Topics include valuation discounts in family limited partnerships, the relevant regulatory framework for arriving at an
arm's-length transfer price in intercompany transactions, the economic attributes and influences that create, destroy and transfer value in intellectual property and much more.
The principles of section 482 of the Internal Revenue Code should be relevant; if a debt instrument contains
arm's-length terms, it should be deemed to be a debt under principles of economic reality.
Implicit in this definition is the concept of
arm's-length exchange--that is, both parties are well-informed or well-advised and each is acting in what he considers his own best interest.
