Section 6662 penalty quandry: more regulations, more compliance, and less logic

Article Abstract:

The contemporaneous documentation requirements in the 1994 temporary regulations under IRC section 6662 governing transfer-pricing valuation errors require an inordinate amount of effort and do not assure that complying taxpayers will not be penalized. Section 6662 establishes accuracy-related penalties for inadequate transfer prices in transactions between affiliated international companies. The standards for compliance need to be clarified, and taxpayers should receive safe harbor treatment for complying with the burdensome record-keeping requirements.

Tax penalties

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An asset-based approach to the profit split method of international transfer pricing

Article Abstract:

IRC 482 presents four methods of dealing with issues of pricing international transfers of intangibles: comparable, uncontrolled price (CUP); resale; cost plus and 'other.' The method most often used under other is an arbitrary profit split, which is popular because of inherent drawbacks in the first three methods. Profit splits which are based on assets offer the benefits of having a sound legal financial basis, a similar profit margin to CUP and reduced book keeping requirements.

Profits, Capital movements, Corporate profits

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