TPcases

Database of Transfer Pricing Case Laws

§ 1.482-9(d)(2)(v) Arm’s length range.

Posted on September 10, 2022 | By Internal Revenue Service

Category: US IRC Section 482 on Transfer Pricing, § 1.482-9 Methods to determine taxable income in connection with a controlled services transaction | Tag: Gross service margin method, Intra-group services, Services

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See § 1.482-1(e)(2) for determination of the arm’s length range.

Related Guidelines

TPG2022 Chapter VII paragraph 7.36For example, it may be the case that the market value of intra-group services is not greater than the costs incurred by the service provider. This could occur where, for example, the service is not an ordinary or recurrent activity of the service provider but is offered incidentally as a...

TPG2022 Chapter VII paragraph 7.35Depending on the method being used to establish an arm’s length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm’s length transaction, an independent enterprise normally would seek to...

TPG2022 Chapter VII paragraph 7.34When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying a cost based method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the services themselves. In...

TPG2022 Chapter VII paragraph 7.33Where a cost based method is determined to be the most appropriate method to the circumstances of the case, the analysis would require examining whether the costs incurred by the group service provider need some adjustment to make the comparison of the controlled and uncontrolled transactions reliable....

TPG2022 Chapter VII paragraph 7.32It may be necessary to perform a functional analysis of the various members of the group to establish the relationship between the relevant services and the members’ activities and performance. In addition, it may be necessary to consider not only the immediate impact of a service, but also its long-term...

TPG2022 Chapter VII paragraph 7.29In trying to determine the arm’s length price in relation to intra¬group services, the matter should be considered both from the perspective of the service provider and from the perspective of the recipient of the service. In this respect, relevant considerations include the value of the service to the recipient...

TPG2022 Chapter VII paragraph 7.28In identifying arrangements for charging any retainer for the provision of “on call” services (as discussed in paragraphs 7.16 and 7.17), it may be necessary to examine the terms for the actual use of the services since these may include provisions that no charge is made for actual use until...

TPG2022 Chapter VII paragraph 7.27The compensation for services rendered to an associated enterprise may be included in the price for other transfers. For instance, the price for licensing a patent or know-how may include a payment for technical assistance services or centralised services performed for the licensee or for managerial advice on the marketing...

TPG2022 Chapter VII paragraph 7.26When an indirect-charge method is used, the relationship between the charge and the services provided may be obscured and it may become difficult to evaluate the benefit provided. Indeed, it may mean that the enterprise being charged for a service itself has not related the charge to the service. Consequently,...

TPG2022 Chapter VII paragraph 7.25The allocation should be based on an appropriate measure of the usage of the service that is also easy to verify, for example turnover, staff employed, or an activity based key such as orders processed. Whether the allocation method is appropriate may depend on the nature and usage of the...

Supplemental Guidance

Peru vs “Copper Corporation S.A.”, July 2011, Tax Court, Case No 12609-8-2011“Copper Corporation S.A.” had deducted intra-group service payments in it’s taxable income. The Peruvian tax authorities determined that the documentation provided by the company did not sufficiently support the actual provision of these services. Hence, tax deductions for the expenses was denied. The case was taken to the Tax Court...

Peru vs “Metal S.A.”, February 2023, Tax Court, Case No 01428-1-2023Following an audit, the tax authorities found that “Metal S.A.” had not been remunerated at arm’s length for its distribution activities. In addition, the intra-group services received by “Metal S.A.” were considered to be low value-added services for which the margin could not exceed 5% under local Peruvian TP rules....

Peru vs “Airline S.A.”, September 2024, Tax Court, Case No 08970-8-2024The case concerns a number of expenses claimed by “Airline S.A.” as deductible payments for intra-group services, in particular aircraft leasing and related costs, which the company argued should be deductible under the transfer pricing rules. “Airline S.A.” claimed that these costs were essential and necessary expenses within an airline...

Peru vs “Airline S.A.”, March 2025, Tax Court, Case No 02374-4-2025“Airline S.A.” claimed various expenses as deductible payments for intra-group services, arguing that these costs were essential and necessary within the corporate group. However, the tax authorities determined that “Airline S.A.” had not provided sufficient documentation to demonstrate that the services were actually rendered. “Airline S.A.” appealed to the Tax...

Romania vs S.C. A., March 2021, Supreme Administrative Court, Case No 1955/2021S.C. A. had paid for intra group services in FY 2013 and 2014 and deducted the costs for tax purposes. The purchases of services were made on the basis of a management services contract concluded with related party C. S.A. and a production service contract, logistics service contract, product management...

Romania vs A. S.A, May 2023, Supreme Administrative Court, Case No 2594/2023A. Romania S.R.L. had purchased gas and strategy consulting services from related parties. The tax authorities issued an assessment where part of the deduction for these costs had been denied by application of the arm’s length principle. The court of first instance ruled in favor of A S.A and an...

Colombia vs Industria Nacional de Gaseosas S.A. – INDEGA, April 2024, Counsil of State, Case No. 25000-23-37-000-2014-00372-01 (26674)INDEGA filed a tax return for FY2011 in which it concluded that its related party transactions had been conducted at arm’s length. Transfer prices had been determined using a TNMM with the operating margin over operating costs and expenses (ROTC) as the profit level indicator (PLI). Following an audit, the...

Czech Republic vs BEAS SUN s.r.o., July 2024, Supreme Administrative Court, Case No 6 Afs 255/2023 – 65The tax authorities chose the cost plus method for determining the arm’s length price for low value-added intra-group services provided between related parties (Cost+). It took the parent company’s wage costs as the basis, to which it added a mark-up of 7 %, the maximum mark-up under Guideline D-10. On...

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§ 1.482-9(d)(2)(v) Arm’s length range.

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Supplemental Guidance

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