During the taxable year, the owner (lessee) or the user was regularly engaged in the trade or business of renting property of the same general type as the property in question to unrelated persons ... Read more

The taxpayer establishes a more appropriate rental charge under the general rule set forth in paragraph (c)(2)(i) of this section; or ... Read more

The provisions of paragraph (c)(2)(iii)(A) of this section shall not apply if either – ... Read more

Except as provided in paragraph (c)(2)(iii)(B) of this section, where possession, use, or occupancy of tangible property, which is leased by the owner (lessee) from an unrelated party is transferred by sublease or other arrangement to the user, an arm’s length rental charge shall be considered to be equal to all the deductions claimed by the owner (lessee) which are attributable to the property for the period such property is used by the user. Where only a portion of such property was transferred, any allocations shall be made with reference to the portion transferred. The deductions to be considered include the rent paid or accrued by the owner (lessee) during the period of use and all other deductions directly and indirectly connected with the property paid or accrued by the owner (lessee) during such period. Such deductions include deductions for maintenance and repair, utilities, management and other similar deductions ... Read more

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See § 1.482-2(c)(2)(ii) (26 CFR Part 1 revised as of April 1, 1985), for the determination of safe haven rental charges in the case of certain leases entered into before May 9, 1986, and for leases entered into before August 7, 1986, pursuant to a binding written contract entered into before May 9, 1986 ... Read more

For purposes of paragraph (c) of this section, an arm’s length rental charge shall be the amount of rent which was charged, or would have been charged for the use of the same or similar property, during the time it was in use, in independent transactions with or between unrelated parties under similar circumstances considering the period and location of the use, the owner’s investment in the property or rent paid for the property, expenses of maintaining the property, the type of property involved, its condition, and all other relevant facts ... Read more

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Where possession, use, or occupancy of tangible property owned or leased by one member of a group of controlled entities (referred to in this paragraph as the owner) is transferred by lease or other arrangement to another member of such group (referred to in this paragraph as the user) without charge or at a charge which is not equal to an arm’s length rental charge (as defined in paragraph (c)(2)(i) of this section) the district director may make appropriate allocations to properly reflect such arm’s length charge. Where possession, use, or occupancy of only a portion of such property is transferred, the determination of the arm’s length charge and the allocation shall be made with reference to the portion transferred ... Read more

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In addition, when applying the cost plus method one should pay attention to apply a comparable mark up to a comparable cost basis. For instance, if the supplier to which reference is made in applying the cost plus method in carrying out its activities employs leased business assets, the cost basis might not be comparable without adjustment if the supplier in the controlled transaction owns its business assets. The cost plus method relies upon a comparison of the mark up on costs achieved in a controlled transaction and the mark up on costs achieved in one or more comparable uncontrolled transactions. Therefore, differences between the controlled and uncontrolled transactions that have an effect on the size of the mark up must be analysed to determine what adjustments should be made to the uncontrolled transactions’ respective mark up ... Read more

“TELE SA” had applied a 15% withholding tax rate to lease payments for telecommunications equipment purportedly provided by a Chilean company that had been established by the Mexican parent of the “TELE” group. TELE SA claimed the payments qualified as royalties under Article 12 of the Peru-Chile double tax treaty. The Peruvian Tax Authority found the reduced 15 % rate did not apply to the lease payments because the Chilean entity was not the beneficial owner of the royalty payments. Hence an assessment was issued where withholding taxes had been calculated using a 30% rate under Peruvian domestic tax legislation. An appeal was filed with the Tax Court. Judgement of the Tax Court The Tax Court upheld the decision of the tax authorities and dismissed the appeal of “TELE SA”. The 15% withholding tax rate for royalty provided for in Article 12 of the double tax treaty between Peru and Chile did not apply to the payments as the Chilean ... Read more

In addition, when applying the cost plus method one should pay attention to apply a comparable mark up to a comparable cost basis. For instance, if the supplier to which reference is made in applying the cost plus method in carrying out its activities employs leased business assets, the cost basis might not be comparable without adjustment if the supplier in the controlled transaction owns its business assets. The cost plus method relies upon a comparison of the mark up on costs achieved in a controlled transaction and the mark up on costs achieved in one or more comparable uncontrolled transactions. Therefore, differences between the controlled and uncontrolled transactions that have an effect on the size of the mark up must be analysed to determine what adjustments should be made to the uncontrolled transactions’ respective mark up ... Read more