Skip to content

TPcases

Database of Transfer Pricing Case Laws
MENUMENU
  • Show more results

    Generic filters
    Exact matches only
    Search in title
    Search in content
  • Show more results

    Generic filters
    Exact matches only
    Search in title
    Search in content
  • Keywords
  • Countries
  • Countries
    • Albania
    • Angola
    • Argentina
    • Australia
    • Austria
    • Azerbaijan
    • Bahamas
    • Bangladesh
    • Belgium
    • Bermuda
    • Bosnia and Herzegovina
    • Brazil
    • Bulgaria
    • Canada
    • Cayman
    • Chile
    • China
    • Colombia
    • Costa Rica
    • Croatia
    • Cyprus
    • Czech
    • Denmark
    • Dominica
    • Ecuador
    • Egypt
    • El Salvador
    • Estonia
    • European Union
    • Finland
    • France
    • Georgia
    • Germany
    • Greece
    • Greenland
    • Honduras
    • Hong Kong
    • Hungary
    • Iceland
    • India
    • Indonesia
    • Isle of Man
    • Ireland
    • Israel
    • Italy
    • Jamaica
    • Japan
    • Kazakhstan
    • Kenya
    • Korea
    • Kosovo
    • Labuan
    • Latvia
    • Liberia
    • Liechtenstein
    • Lithuania
    • Luxembourg
    • Malaysia
    • Maldives
    • Malta
    • Mauritius
    • Mexico
    • Netherlands
    • New Zealand
    • Nigeria
    • Norway
    • Pakistan
    • Panama
    • Papua New Guinea
    • Paraguay
    • Peru
    • Philippines
    • Poland
    • Portugal
    • Puerto Rico
    • Romania
    • Russia
    • Saudi Arabia
    • Senegal
    • Seychelles
    • Singapore
    • Slovakia
    • Slovenia
    • South Africa
    • Spain
    • Sri Lanka
    • Sweden
    • Switzerland
    • Taiwan
    • Tanzania
    • Thailand
    • Tunisia
    • Türkiye
    • Uganda
    • Ukraine
    • United Arab Emirates
    • United Kingdom
    • Uruguay
    • United States
    • Zimbabwe
    • OECD
    • UN
    • G20
  • Guidelines
    • OECD Transfer Pricing Guidelines 2022
      • English
      • French
      • German
      • Japanese
      • Spanish
    • OECD Transfer Pricing Guidelines 2017
      • Chinese
      • Czech
      • English
      • French
      • German
      • Japanese
      • Spanish
      • Turkish
    • OECD Transfer Pricing Guidelines 2010
      • English
      • French
      • German
      • Hungarian
      • Italian
      • Serbian
      • Slovenian
      • Spanish
      • Ukranian
    • OECD Transfer Pricing Guidelines 2009
      • English
      • French
    • OECD Transfer Pricing Guidelines 1995
    • OECD Transfer Pricing Guidelines 1979
    • OECD Model Tax Convention 2017
    • UN Manual on Transfer Pricing 2021
    • UN Model Double Tax Convention 2017
  • Case Laws
    • Arm's Length Principle
    • Benchmark, Range and Median
    • Beneficial Owner
    • Burden of Proof
    • Business Restructuring
    • Commodity Transactions
    • Comparability Analysis
    • Cost Contribution Arrangements
    • Delineation - Substance over Form
    • Digital Economy
    • Disallowed Deduction
    • EU State Aid
    • Financial Transactions
    • General Anti-Avoidance Rules
    • Intangibles - Goodwill Know-how Patents
    • Legal and Constitutional Issues
    • Losses
    • Non-Recognition and Recharacterisation
    • Permanent Establishments
    • Royalty and License Payments
    • Marketing and Procurement Hubs
    • Series of Related Transactions
    • Services and Fees
    • Shares and Dividends
    • Tax Avoidance Schemes
    • Tax Treaty Interpretation
    • Transfer Pricing Documentation
    • Transfer Pricing Methods
    • Valuation - DCF and CUT/CUPs
    • VAT and Customs Valuation
    • Withholding Tax (WHT)
  • TP News
MENUMENU
  • Show more results

    Generic filters
    Exact matches only
    Search in title
    Search in content
  • Show more results

    Generic filters
    Exact matches only
    Search in title
    Search in content
  • Keywords
  • Countries
  • Countries
    • Albania
    • Angola
    • Argentina
    • Australia
    • Austria
    • Azerbaijan
    • Bahamas
    • Bangladesh
    • Belgium
    • Bermuda
    • Bosnia and Herzegovina
    • Brazil
    • Bulgaria
    • Canada
    • Cayman
    • Chile
    • China
    • Colombia
    • Costa Rica
    • Croatia
    • Cyprus
    • Czech
    • Denmark
    • Dominica
    • Ecuador
    • Egypt
    • El Salvador
    • Estonia
    • European Union
    • Finland
    • France
    • Georgia
    • Germany
    • Greece
    • Greenland
    • Honduras
    • Hong Kong
    • Hungary
    • Iceland
    • India
    • Indonesia
    • Isle of Man
    • Ireland
    • Israel
    • Italy
    • Jamaica
    • Japan
    • Kazakhstan
    • Kenya
    • Korea
    • Kosovo
    • Labuan
    • Latvia
    • Liberia
    • Liechtenstein
    • Lithuania
    • Luxembourg
    • Malaysia
    • Maldives
    • Malta
    • Mauritius
    • Mexico
    • Netherlands
    • New Zealand
    • Nigeria
    • Norway
    • Pakistan
    • Panama
    • Papua New Guinea
    • Paraguay
    • Peru
    • Philippines
    • Poland
    • Portugal
    • Puerto Rico
    • Romania
    • Russia
    • Saudi Arabia
    • Senegal
    • Seychelles
    • Singapore
    • Slovakia
    • Slovenia
    • South Africa
    • Spain
    • Sri Lanka
    • Sweden
    • Switzerland
    • Taiwan
    • Tanzania
    • Thailand
    • Tunisia
    • Türkiye
    • Uganda
    • Ukraine
    • United Arab Emirates
    • United Kingdom
    • Uruguay
    • United States
    • Zimbabwe
    • OECD
    • UN
    • G20
  • Guidelines
    • OECD Transfer Pricing Guidelines 2022
      • English
      • French
      • German
      • Japanese
      • Spanish
    • OECD Transfer Pricing Guidelines 2017
      • Chinese
      • Czech
      • English
      • French
      • German
      • Japanese
      • Spanish
      • Turkish
    • OECD Transfer Pricing Guidelines 2010
      • English
      • French
      • German
      • Hungarian
      • Italian
      • Serbian
      • Slovenian
      • Spanish
      • Ukranian
    • OECD Transfer Pricing Guidelines 2009
      • English
      • French
    • OECD Transfer Pricing Guidelines 1995
    • OECD Transfer Pricing Guidelines 1979
    • OECD Model Tax Convention 2017
    • UN Manual on Transfer Pricing 2021
    • UN Model Double Tax Convention 2017
  • Case Laws
    • Arm's Length Principle
    • Benchmark, Range and Median
    • Beneficial Owner
    • Burden of Proof
    • Business Restructuring
    • Commodity Transactions
    • Comparability Analysis
    • Cost Contribution Arrangements
    • Delineation - Substance over Form
    • Digital Economy
    • Disallowed Deduction
    • EU State Aid
    • Financial Transactions
    • General Anti-Avoidance Rules
    • Intangibles - Goodwill Know-how Patents
    • Legal and Constitutional Issues
    • Losses
    • Non-Recognition and Recharacterisation
    • Permanent Establishments
    • Royalty and License Payments
    • Marketing and Procurement Hubs
    • Series of Related Transactions
    • Services and Fees
    • Shares and Dividends
    • Tax Avoidance Schemes
    • Tax Treaty Interpretation
    • Transfer Pricing Documentation
    • Transfer Pricing Methods
    • Valuation - DCF and CUT/CUPs
    • VAT and Customs Valuation
    • Withholding Tax (WHT)
  • TP News

US vs Altera Corp, June 7, 2019, U.S. Court of Appeal, Nos 16-70496 and 16-70497

Posted on June 7, 2019 | By Courts of the US | No comments
Category: Cost Contribution Arrangements, Legality - Legitimacy - Constitutional | Tag: Altera, CCA/CSA, Cost Sharing Arrangement (CSA), Employee stock options, Qualified cost-sharing arrangements
« Prev | Next »

The US Court of Appeal had reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid under the Administrative Procedure Act.

The Court of Appeal ruled that the Commissioner of Internal Revenue had not gone beyond the authority delegated under 26 U.S.C. § 482, and that the Commissioner’s rule-making authority complied with the Administrative Procedure Act.

The Opinion was shortly after (August 7, 2018) withdrawn by the Court of Appeal.

A final Decision was issued June 7, 2019, reaching the conclusion that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was not (arbitrary and capricious) invalid under the Administrative Procedure Act..

The Court held that the Treasury reasonably interpreted § 482 as an authorization to require internal allocation methods in the QCSA context, provided that the costs and income allocated are proportionate to the economic activity of the related parties, and concluded that the regulations are a reasonable method for achieving the results required by the statute.

 

 

Related Guidelines

TPG2022 Chapter VIII paragraph 8.23For the purpose of determining whether a CCA satisfies the arm’s length principle – i.e. whether each participant’s proportionate share of the overall contributions to the CCA is consistent with the participant’s proportionate share of the overall expected benefits – it is necessary to measure the value of each participant’s...
TPG2022 Chapter VIII paragraph 8.22Whatever the method used to evaluate participants’ relative shares of expected benefits, adjustments to the measure used may be necessary to account for differences between the respective shares of expected and actual benefits received by the participants. The CCA should require periodic reassessment of contributions vis-à-vis the revised share of...
TPG2022 Chapter VIII paragraph 8.21If an arrangement covers multiple activities, it will be important to take this into account in choosing an allocation method, so that the value of contributions made by each participant is properly related to the relative benefits expected by the participants. One approach (though not the only one) is to...
TPG2022 Chapter VIII paragraph 8.20To the extent that a material part or all of the benefits of a CCA activity are expected to be realised in the future and not solely in the year the costs are incurred, most typically for development CCAs, the allocation of contributions will take account of projections about the...
TPG2022 Chapter VIII paragraph 8.19The relative shares of expected benefits might be estimated based on the anticipated additional income generated or costs saved or other benefits received by each participant as a result of the arrangement. An approach that is frequently used in practice, most typically for services CCAs, would be to reflect the...
TPG2022 Chapter VIII paragraph 8.18In cases where CCA activities are outsourced, an arm’s length charge would be appropriate to compensate the entity for services or other contributions being rendered to the CCA participants. Where the entity is an associated enterprise of one or more of the CCA participants, the arm’s length charge would be...
TPG2022 Chapter VIII paragraph 8.17As described in the previous paragraphs, it is not necessary for the CCA participants to perform all of the CCA activities through their own personnel. In some cases, the participants in a CCA may decide to outsource certain functions related to the subject activity to a separate entity that is...
TPG2022 Chapter VIII paragraph 8.16To the extent that specific contributions made by participants to a CCA are different in nature, e.g. the participants perform very different types of R&D activities or one of the parties contributes property and another contributes R&D activities, the guidance in paragraph 6.64 is equally applicable. This means that the...
TPG2022 Chapter VIII paragraph 8.15A party would also not be a participant in a CCA if it does not exercise control over the specific risks it assumes under the CCA and does not have the financial capacity to assume these risks, as this party would not be entitled to a share in the output...
TPG2022 Chapter VIII paragraph 8.9As indicated in paragraph 8.4, there is no difference in the analytical framework for analysing transfer prices for CCAs compared to analysing other forms of contractual relations. The guidance in Section D of Chapter I is relevant to the analysis of all transactions between associated enterprises, and applies to identify...

Supplemental Guidance

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Case Law

US vs Altera Corp, July 2018, U.S. Court of Appeal, Nos 16-704996The US Court of Appeal reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid...
Altera asking the US Supreme Court for a judicial review of the 2019 Decision from the U.S. Court of Appeals concerning the validity of IRS regs. on CCAsAltera has asked the US Supreme Court for a judicial review of the Decision from the U.S. Court of Appeals for the Ninth Circuit over the validity of Internal Revenue Service regulations  that requires related companies to share the cost of stock-based employee compensation when shifting their intangible assets abroad...
US vs Altera Corp, June 2020, Supreme Court – review denied, Case no 19-1009Altera’s request for a Supreme Court review of the decision issued by the US Court of Appeal in June 2019 has been denied. A case cannot, as a matter of right, be appealed to the U.S. Supreme Court. A party seeking to appeal to the Supreme Court from a lower...
US vs Seagate Technology, December 2000, United States Tax CourtThe IRS ruled that Seagate should have included the cost of employee stock options in the net revenue calculation associated with its cost-sharing agreement with its foreign subsidiaries. Seagate appealed the ruling on the grounds that the IRS was not aware of actual arm’s length circumstances relating to the employee...
US vs. Xilinex Inc, August 2005In a decision the IRS found that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation. In this decision, the United States Tax Court overruled the IRS, finding that in an arm’s-length situation, unrelated parties would...
US vs Microsoft, May 2017, US District CourtIn an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents as requested by the IRS. In a...
US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866The IRS was of the opinion, that Medtronic erred in allocating the profit earned from its devises and leads between its businesses located in the United States and its device manufacturer in Puerto Rico. To determine the arm’s length price for Medtronic’s intercompany licensing agreements the comparable profits method was...
US vs Seagate Tech, 1994, US Tax Court 102 T.C. 149In the Seagate Tech case the US Tax Court was asked to decide on several distinct transfer pricing issues arising out of a transfer pricing adjustments issued by the IRS. Whether respondent’s reallocations of gross income under section 482 for the years in issue are arbitrary, capricious, or unreasonable; whether...
Copyright 2025 TPcases