AMERICAN CHAMBER OF COMMERCE (U.K.) SAYS REGS ARE DETRIMENTAL TO TRADE.

The American Chamber of Commerce (UK) has been in existence for over 50 years and represents more than 1400 businesses, both British and US based. These businesses have forged substantial trading links in both countries. Amcham (UK) is dedicated to fostering these links and generally to developing trading relationships between Britain and the US.

The Chamber mission has led it to support measures, in either country, which tend to foster the mutually beneficial trading relationship. It is the Chamber's view, however, that the proposed regulations under Internal Revenue Code section 482 would still have a detrimental effect on trade between US and British industry, despite your efforts to modify the regulations following the original white paper.

The principle objection to the new regulations is the increased risk of double taxation to which multinational companies will be exposed. The regulations set forth a novel method for measuring the appropriateness of a particular transaction's transfer price, requiring that a company's overall profitability approach that of its competitors. This methodology is fundamentally at odds with the traditional methods used by US trading partners. Most countries base transfer pricing analysis upon the model set forth by the Organization for Economic Cooperation and Development (OECD). These differing methodologies for measuring transfer prices will increase the likelihood of conflict between taxpayers and tax authorities, and ultimately between tax authorities themselves. For companies, this creates uncertainty over transfer pricing policies as well as adding to the cost of resolving disputes with authorities. We would suggest that this profitability methodology be used as a test check against the traditional arms length convention.

A second objection to the proposed regulations is the difficulties which companies will encounter in computing a transfer price using the methodology of the regulations. The comparable profit interval approach requires access to detailed information concerning competitors and other companies which operate similar businesses. The calculations will only be meaningful if there is information available in sufficient detail to allow for reliable comparisons between business segments of companies. The availability of this information in the US is suspect. Additionally, where the tested party in a transaction is foreign, it is our belief that the data currently available is qualitatively and quantitatively less reliable than in the US. As a result, a taxpayer must choose between using less reliable data or testing a less appropriate party.

Finally, the methodology set forth in the regulations is unnecessarily burdensome and will add an unneeded layer of cost to international commerce for US companies. The large multinationals, with many product lines, will be required to undertake multiple economic analyses requiring sophisticated sampling techniques. Smaller companies will likely not have the internal resources to undertake these studies and be forced into expending resources for outside specialists.

In summary, the Chamber would encourage the Treasury to maintain a closer connection with the OECD model in its approach to transfer pricing, ultimately giving more assurance that companies will not be at risk to double taxation from international commerce. The OECD model needs updating, and the Treasury can contribute greatly to this effort. We would encourage that route rather than the approach reflected in these proposed regulations.

Yours faithfully,