Identifying Relevant Intercompany Activities, Quantifying Measurable Benefits Under the Temporary US Services Rule

Wed Oct 25 16:24:38 EDT 2006
By Dr. Harlow Higinbotham and Dr. Stuart Harshbarger

Recent revisions to the Internal Revenue Service's transfer pricing regulations, effective 15 December 2006, provide taxpayers with new methods and guidance for determining charges between related parties for intercompany services. For US taxpayers, the temporary regulations constitute a significant departure from and refinement of the 1968 service fee regulations. The new regulations place greater emphasis on identifying, quantifying, and documenting the benefits accruing to recipients of allocable services, thereby requiring US taxpayers to correctly identify and account for allocable services when completing their contemporaneous documentation.

In this article from Tax Management Transfer Pricing Report, NERA Senior Vice President Dr. Harlow Higinbotham and Vice President Dr. Stuart Harshbarger summarize these new service rules, focusing on the scope of allocable services and the methods applied in allocating and apportioning costs, as well as implications for multinationals setting out to develop a globally consistent transfer pricing policy for their service transactions. The authors note that although quantifying the presence or absence of benefits from centralized services will continue to be an area of uncertainty, controversy should diminish now that the US service fee regulations are in substantial conformity with OECD guidelines.

This article originally appeared in Tax Management Transfer Pricing Report (Vol. 15, No. 12, 25 October 2006), and is reproduced with permission of the publisher, Tax Management Inc., a BNA Company, Washington, DC, USA. For more information, please visit