Common Ownership Present but No Transfer Pricing Adjustment Needed

Internal Revenue Service

In a heavily redacted legal memorandum, the IRS concluded that despite the fact that transactions entered into by a C corporation are controlled transactions for purposes of section 482, a transfer pricing adjustment is not appropriate because the amounts paid are arm’s-length prices.

In a heavily redacted legal memorandum, the IRS concluded that despite the fact that transactions entered into by a C corporation are controlled transactions for purposes of section 482, a transfer pricing adjustment is not appropriate because the amounts paid are arm’s-length prices.

In a heavily redacted legal memorandum, the IRS concluded that despite the fact that transactions entered into by a C corporation are controlled transactions for purposes of <a href="/research/federal/usc26/482" resolve="/lr/resolve/section-482/cq9y" title="section 482">section 482</a>, a transfer pricing adjustment is not appropriate because the amounts paid are arm’s-length prices. For the transactions at issue the IRS determined that the corporation and its affiliate satisfy the first requirement of <a href="/research/federal/usc26/482" resolve="/lr/resolve/section-482/cq9y" title="section 482">section 482</a> that there must be two or more entities. However, the two entities in question do not satisfy the common ownership requirement. Citing <a href="/research/federal/cfr26/1.482-1#cv11-0000170" resolve="/lr/resolve/reg-section-1482-1i4/cv11#cv11-0000170" title="reg. section 1.482-1(i)(4)">reg. section 1.482-1(i)(4)</a> and <a href="https://www.taxnotes.com/court-opinions-court-appeals/%5Bcm%3Acategories%5D/charles-town-inc-v-commissioner/2017/06/07/1lwkc" title="Charles Town, Inc. v. Commissioner">Charles Town, Inc. v. Commissioner</a>, 372 F.2d 415, 419-420 (4th Cir. 1966), the IRS concluded that the current regulation’s control concept does not require the ability to influence transfer prices but instead requires only that the controlling interests control the taxpayers. As such, the IRS determined the control requirement has been met in this case. Despite common ownership or control being present in this case, the IRS determined that an adjustment under <a href="/research/federal/usc26/482" resolve="/lr/resolve/section-482/cq9y" title="section 482">section 482</a> was not necessary to prevent tax avoidance or to clearly reflect income because the transactions at issue were entered into at arm’s-length prices.

In a heavily redacted legal memorandum, the IRS concluded that despite the fact that transactions entered into by a C corporation are controlled transactions for purposes of section 482, a transfer pricing adjustment is not appropriate because the amounts paid are arm’s-length prices. For the transactions at issue the IRS determined that the corporation and its affiliate satisfy the first requirement of section 482 that there must be two or more entities. However, the two entities in question do not satisfy the common ownership requirement. Citing reg. section 1.482-1(i)(4) and Charles Town, Inc. v. Commissioner, 372 F.2d 415, 419-420 (4th Cir. 1966), the IRS concluded that the current regulation’s control concept does not require the ability to influence transfer prices but instead requires only that the controlling interests control the taxpayers. As such, the IRS determined the control requirement has been met in this case. Despite common ownership or control being present in this case, the IRS determined that an adjustment under section 482 was not necessary to prevent tax avoidance or to clearly reflect income because the transactions at issue were entered into at arm’s-length prices.