R5 - Multi-jurisdictional Tax Issues

Question 1

Arm’s Length

Answer 1

• IRS Adjustments to determine “True Taxable Income”
• Applies to RP transactions
• RP Transaction results = Company/customer transaction results
• CUP = Tangible Property
• CUT = Intangible Property

Question 2

When does transfer pricing occur?

Answer 2

1. A U.S based TP transfers, sells, leases tangible property or intangible from an affiliate (RP).
2. A U.S based TP enters into loan agreements or service agreements with an affiliate (RP).
3. A U.S based TP shares costs with an affiliate (RP).

Question 3

What section covers Avoidance of Penalties?

Answer 3

• Section 458 study based on Allowance Pricing Methods.
• Section 458 study not based on Allowance Pricing Methods.
• Studies must be completed by the date the return is filed.

Question 4

Advance Pricing Agreement Program

Answer 4

Binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return for a covered year consistent with the agreed transfer pricing method.

Question 5

State Allocation of Income

Answer 5

Nonbusiness Income = Allocated to home state

Business Income = Among states

Question 6

State Allocation of Business Income Calc

Answer 6

a. Prop and rent exp in State/total prop
b. Payroll in State/total payroll
c. Sales in State/total sales
Total State Biz Income Allocation (%) = (a + b + c) /3

Question 7

Foreign Branch

Answer 7

• Unincorporated, extension of domestic company.
• Earnings taxed when earned by host country.
• FTC or Deduction allowed.

Question 8

Foreign Sub

Answer 8

• Separate legal entity.
• Profits taxed by host country.
• Earnings not taxed until brought back to the USA.