§ 1.482-1(f)(2)(iii)(D) Applications of methods using multiple year averages.

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If a comparison of a controlled taxpayer’s average result over a multiple year period with the average results of uncontrolled comparables over the same period would reduce the effect of short-term variations that may be unrelated to transfer pricing, it may be appropriate to establish a range derived from the average results of uncontrolled comparables over a multiple year period to determine if an adjustment should be made. In such a case the district director may make an adjustment if the controlled taxpayer’s average result for the multiple year period is not within such range. Such a range must be determined in accordance with § 1.482-1(e) (Arm’s length range). An adjustment in such a case ordinarily will be equal to the difference, if any, between the controlled taxpayer’s result for the taxable year and the mid-point of the uncontrolled comparables’ results for that year. If the interquartile range is used to determine the range of average results for the multiple year period, such adjustment will ordinarily be made to the median of all the results of the uncontrolled comparables for the taxable year. See Example 2 of § 1.482-5(e). In other cases, the adjustment normally will be made to the arithmetic mean of all the results of the uncontrolled comparables for the taxable year. However, an adjustment will be made only to the extent that it would move the controlled taxpayer’s multiple year average closer to the arm’s length range for the multiple year period or to any point within such range. In determining a controlled taxpayer’s average result for a multiple year period, adjustments made under this section for prior years will be taken into account only if such adjustments have been finally determined, as described in § 1.482-1(g)(2)(iii). See Example 3 of § 1.482-5(e).

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