Date: 6/13/2019
9th Circ.'s Revival Of IRS Rules Stretches 'Arm's Length'
The Ninth Circuit's split decision to uphold cost-sharing rules challenged by chipmaker Altera Corp. gives the Internal Revenue Service wiggle room in deciding what counts as arm's length among related businesses — and casts doubt on the long-standing approach to transfer pricing.
Last week, a 2-1 majority on a Ninth Circuit panel overturned the U.S. Tax Court's ruling for Altera. In doing so it reinstated a 2003 regulation that required related businesses to include stock-based compensation in their cost-sharing agreements.
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It's troubling that the Treasury Department could simply set aside the arm's-length standard after saying it couldn't find comparable transactions, according to Mark Allison, an attorney who counsels multinational corporations at Caplin & Drysdale Chtd. He said the leading premise of Internal Revenue Code Section 482, which covers transfer pricing regulations, involves first determining what is arm's length.
“Just because you have a hard time figuring out comparability shouldn't be the leverage to then just simply say, ‘We're going to ignore arm's-length requirements altogether,’” he said.
Read more at Law360.
