FRISCH OUTLINES COMMENTS ON TRANSFER-PRICING REGS.
AUG. 12, 1992
FRISCH OUTLINES COMMENTS ON TRANSFER-PRICING REGS.
DOCUMENT ATTRIBUTES
- AuthorsFrisch, Daniel J.
- Institutional AuthorsHorst & Frisch
- Cross-ReferenceIL-372-88
IL-401-88 - Code Sections
- Subject Area/Tax Topics
- Index Termsrelated-party allocations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 92-7836
- Tax Analysts Electronic Citation92 TNT 170-60
=============== SUMMARY ===============
Daniel J. Frisch of Horst & Frisch, Washington, has submitted an outline of comments for the public hearing on the proposed section 482 regulations. The comments, which will be delivered by Grant M. Clowery, will focus on accounting data issues.
=============== FULL TEXT ===============
August 12, 1992
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Attn: CC:CORP:T:R [INTL-0372-88, INTL-0401-88]
Room 5228
Washington, DC 20044
Dear Sir:
Grant M. Clowery and I would like to speak at the public hearing on the section 482 proposed regulations on August 31, 1992. We suggest that we appear as a group representing Horst & Frisch Incorporated, and that we take up a single 10-minute time slot for our presentation. For your information, Dr. Clowery and I are both Managing Directors at Horst & Frisch Incorporated.
Specifically, because I have already submitted written comments, we suggest that Grant Clowery's remarks occupy the 10 minutes that would be allotted to us. Enclosed is an outline of Dr. Clowery's oral comments. I would attend in order to be available to answer any questions on my written comments that the IRS or Treasury personnel might have; however, I wouldn't make a separate oral presentation.
Please call Grant or me at 296-4005 if you have any questions.
Sincerely,
Daniel J. Frisch
Horst & Frisch
Washington, D.C.
Enclosure
Grant M. Clowery
Horst & Frisch Incorporated
OUTLINE OF HEARING COMMENTS
I. INTRODUCTION
A. Who I am and why I'm testifying:
1. An accountant with experience as an international tax
practitioner and an expert witness in Sec. 482 cases.
2. The proposed regulations make a number of assumptions
with regard to the nature and availability of accounting
data. I intend to speak to the reasonableness of those
assumptions.
3. I also want to address the issue of effective
implementation of the proposed regulations.
II. ACCOUNTING DATA ISSUES
A. What the proposed regs assume about accounting data:
1. Financial statements are generally available to provide
the financial data needed for the analyses that are
required by CPI.
2. Financial data contained in the available financial
statements are directly comparable, because they are
contained in audited financial statements that have been
prepared in accordance with Generally Accepted
Accounting Principles
B. What is wrong with these assumptions:
1. The availability of useful comparable financial
statement varies dramatically by industry.
2. Financial statement segment data may be difficult to
interpret, due to wide discretion available to
corporations in presenting these data.
III. IMPLICATIONS OF THESE DIFFICULTIES
A. Taxpayers' viewpoint:
1. Obtaining the necessary data and analyzing them to
determine whether they are comparable to those of the
entity of interest is time consuming and costly as it
requires relatively high level of staff to deal with the
data difficulties noted above
2. These costs may well be justified in the context of
litigation involving hundreds of millions of dollars,
but it is questionable whether this expense is justified
as an every day requirement for all taxpayers.
B. IRS's viewpoint
1. Exam division personnel will be required to have a very
high level of skill in the area of financial statement
analysis, which is not at present one of the areas in
which international examiners are routinely trained.
2. Review of the analyses prepared by taxpayers will be
difficult and time consuming. It is my view that the
proposed regulations will provide an even greater
challenge to the Exam division than the current
regulations.
IV. COMMENTS AND SUGGESTIONS
A. The proposed regulations contain an analytical framework that
provides a more detailed "road map" in the transfer pricing
area than has heretofore been the case.
B. Implementation of the proposed regulations will be costly and
difficult for both taxpayers and the Service.
C. Safe harbors and other arbitrary exclusions from the overall
system are not desirable from a policy viewpoint and the APA
process is very expensive.
D. Consideration should be given to the use of a ruling program
under which taxpayers who believe that their transfer pricing
situation does not give rise to significant tax avoidance
could request a determination as to their status. The result
could be that taxpayers with operations in high tax
jurisdictions would continue using their current transfer
pricing methodology and not have to introduce the additional
cost of performing the CPI analyses. Taxpayers operating in
tax havens or those whom the Service believes have non-tax
reasons for using other than arms' length pricing would be
required to comply with the proposed regulations. The goal of
the proposed ruling plan would be to allow taxpayers who
believe that their current transfer pricing system produces
an arms' length result to get a ruling and reduce their
compliance costs.
DOCUMENT ATTRIBUTES
- AuthorsFrisch, Daniel J.
- Institutional AuthorsHorst & Frisch
- Cross-ReferenceIL-372-88
IL-401-88 - Code Sections
- Subject Area/Tax Topics
- Index Termsrelated-party allocations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 92-7836
- Tax Analysts Electronic Citation92 TNT 170-60
