USCIB members have expressed concern over proposed changes to a key section of the U.S. tax code that covers transfers between related companies. They strongly favor retaining an existing rule for its clarity and ease of use.

On January 14, Mike Mason (PricewaterhouseCoopers), who chairs USCIB’s Working Group on Transfer Pricing of Services, testified before a panel of Internal Revenue Service and Treasury Department officials on the proposed rewrite of the 1960s-era regulations on taxation of inter-company services and intangibles (known as Section 482). He was joined by Ed Futterer (ExxonMobil), who spoke on behalf of the American Petroleum Institute, and several other industry panelists.

Strong support was voiced for retaining the “cost safe harbor,” which allows for the allocation and apportionment of certain costs between related parties without any markup. Panelists said a proposed replacement system, the “simplified cost base method,” would add costs and administrative burdens. They praised the current method for its efficiency, ease of administration, consistency across industries and certainty in terms of application. Several speakers noted that using the proposed new method would require a great deal of otherwise unnecessary transfer pricing analysis.

Most speakers asked to have the proposed new system eliminated outright, although a few pressed merely for greater clarity and other changes to the proposal. Dissatisfaction was also expressed at the emphasis placed on the residual profit split method: many complained that too few examples were put forward in the proposal and, of those included, many were either biased, incomplete or inaccurate.

Members plan to raise this issue with Barbara Angus, international tax counsel with the Treasury Dept., at the February 25 meeting of USCIB’s Tax Committee.

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