FROM THE OFFICE OF PUBLIC AFFAIRS

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Today, the Treasury Department and the IRS issued proposed regulations on the tax treatment of services transactions, including services transactions related to intangible property, under the related party transfer pricing rules. The transfer pricing rules generally provide that the results of transactions between related parties must be consistent with the results that would have occurred had the transaction been between unrelated persons dealing at arm's length.

"The proposed transfer pricing regulations provide significant and much-needed guidance relating to the treatment of related-party cross-border services transactions," stated Treasury Assistant Secretary for Tax Policy Pamela Olson. "The proposed regulations preserve aspects of the current rules that provide reduced administrative and compliance burdens for low-margin services. At the same time, the proposed regulations will bring the current rules more into line with the arm's length standard and eliminate aspects of the current rules that have proved problematic. Modernizing the regulations also addresses a number of the concerns regarding the transfer of valuable intangibles outside the United States for less than arm's length consideration that have arisen in the context of the discussion of corporate inversions. The proposed regulations ensure that taxpayers cannot characterize a transfer of intangible property as a provision of services in order to reach inappropriate results.”

The current regulations regarding related party services transactions were issued in 1968, and are the only significant part of the 1968 related party transfer pricing regulations that was not addressed by updated regulations issued in 1994 and 1995. The related party services regulations are being updated to reflect legal developments and developments in the economy and in business practices since the regulations were issued in 1968, as well as to address aspects of the regulations that have been particularly difficult to administer.

The proposed regulations provide guidance on the transfer pricing methods to be used to determine the arm's length price in a services transaction. The transfer pricing methods provided generally are consistent with current regulations applicable to transfers of tangible and intangible property and are consistent with international standards in this area. The proposed regulations provide a new transfer pricing method for low-margin services, such as routine back-office services, that would require a less robust analysis than would be required under the general transfer pricing rules. The proposed regulations provide guidance intended to coordinate and harmonize the rules applicable to services related to intangibles with the transfer pricing rules applicable to transfers of intangible property.

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Related Documents:

• The Text Of The Proposed Regulations