Press Room: Tax Release

September 16, 2015

IRS Issues New Transfer Pricing Coordination Rules

This week, IRS released final and temporary regulations clarifying the application of the arm’s length standard under Sec. 482 of the Internal Revenue Code (Code). The regulations are effective for tax years ending on or after September 14, 2015.


The new regulations overwrite Reg. 1.482-1(f)(2) regarding the aggregation of transactions between associated enterprises (controlled transactions). Taxpayers are now required to ensure that any controlled transactions subject to multiple sections of the Code or regulations (e.g., Sec. 367 and Sec. 482) must be determined based on a consistent and coordinated application of these sections. Further, such consistent and coordinated application will be seen to have occurred if the transfers are analyzed and valued pursuant to Sec. 482. Key points include:

  • Arm’s length compensation is independent of form or character.
  • Aggregation requires a coordinated best method analysis. 
  • Transactions not considered because the items exchanged do not constitute property under Sec. 351 and Sec. 367(d) must nonetheless be compensated according to Sec. 482. 
  • A combined analysis is required when there are synergies created among items involved in controlled transactions. In such cases, the value of the controlled transactions is greater when valued in the aggregate than when valued as separate transactions. 

What Does This Mean?

Controlled transactions subject to Sec. 482 and other sections in the Code and/or regulations must conform to coordinated treatment. Any analysis to determine the appropriate value, or allocation of value, must be made on a consistent basis with the transfer pricing rules as set forth under Sec. 482 of the Code and regulations thereunder. Notwithstanding their form or character, controlled transactions must be evaluated in the aggregate based on the underlying economic substance and actual conduct of the parties. These new regulations signal a much more expansive view of value as well as what is to be included in the scope of controlled transactions. By referencing synergies, the new language implies that for controlled transactions to be evaluated on a separate basis taxpayers should demonstrate that no synergy value exists between the transactions. 

Action Steps

Because the new regulations are now effective, taxpayers should evaluate all material controlled transactions, whether formally documented or not. First, taxpayers should determine the extent to which other, undocumented transactions could be asserted to exist. Second, taxpayers should determine the extent to which any synergy value is created among the controlled transactions. Third, taxpayers should attempt to quantify any synergies. Fourth, taxpayers should carefully document their controlled transactions whether or not there is synergy value and whether or not an aggregate analysis is appropriate.