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“The controversy and dispute resolution environment continues to be very active for multinational financial institutions”

“A still uncertain economic climate, particularly in the financial secto , continues to spawn issues with the allocation of losses and business reorganisations”


Is there now a trend to whither the arm’s length principle?

Perhaps the U.S. 9th Circuit Court of Appeals’ opinion in Xilinx, in which a majority of the three-judge panel seemed to dismiss the Section 482 arm’s length standard in deference to the Government’s position, was the most troubling of all. Fortunately, after receiving various amicus briefs in support of a request for an en banc (full court) hearing, the 9th Circuit on January 14 withdrew its opinion and the final outcome is now again pending the Appeals Court action or, in effect, a new decision.

So what might one expect to see in 2010 and beyond?

  • Further tax administration scrutiny on complex topics such as intercompany financing, thin capitalization, guarantee fees, reinsurance arrangements and branding charges.

  • The need for continued monitoring of developments, and participation in the consultation process, at the OECD Centre for Tax Policy and Administration from which so many critical projects form the basis for Tax Administration positions, including some with retroactive application.

  • Perhaps some of the more recent U.S. income tax treaties and protocols’ “tie-breaker” provisions for transfer pricing disputes (which call for OECD involvement) will come into operative effect.


  • A still-uncertain economic climate, particularly in the financial sector, continues to spawn issues associated with the allocation of losses and business reorganisations and restructurings. (The impact of the proposed 15-basis point annual “Financial Crisis Responsibility Fee” by the Obama Administration, which affects banks with greater than $50 billion of consolidated capital, adds even greater uncertainty.)

Similar to our message from previous FSTP Perspectives, the transfer pricing road ahead is clearly one with many challenges, but those taxpayers that devote adequate resources to the corporate transfer pricing function and continue to work closely with internal financial and business colleagues should be well- positioned to manage the corporate tax risk.

Wishing each and every reader best wishes for a prosperous new year!

Adam M. Katz


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