USA Law and Practice Contributed by: Kevin Spencer, Kim Marie Boylan, Nicholas Wilkins and Christina Culver, White & Case LLP
has a duty rate of zero. Factors not included in cus - toms valuations include: • freight charges; • insurance charges; • amounts incurred for the construction, erection, assembly or technical assistance provided with regard to the property after importation into the USA; and • any other amounts not taken into account in deter - mining the customs value, not properly includible in customs value, and appropriately included in the cost basis or inventory cost for income tax pur - poses. All such amounts must independently satisfy the arm’s length standard if they are paid to related par - ties. These exceptions allow the Section 482 transfer pricing value to exceed the customs value in certain circumstances. 13. Controversy Process 13.1 Options and Requirements in Transfer Pricing Controversies The transfer pricing controversy process includes the availability both of administrative appeal proceedings and of judicial review. Transfer pricing controversies are not treated differently from other tax controversies. Within the IRS, there is an Independent Office of Appeals, which is empowered to settle tax controver - sy cases at the administrative level, including based on the hazards of litigation. In addition to the standard appeals process, other ADR options within the IRS may be available. If the taxpayer is unable to resolve the controversy at the administrative level, there are three options for judicial review: • the US Tax Court, where the taxpayer can chal - lenge a disputed tax before paying; • the US Court of Federal Claims, where the taxpay - er must pay the tax before seeking a refund; and • the US District Court for the district where the tax - payer resides, which also requires payment first.
Either the taxpayer or the government may appeal a trial court decision as of right to a federal circuit court panel. Further appeals to an en banc circuit court or the US Supreme Court are discretionary for the courts. 14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing There is significant judicial precedent on transfer pric - ing in the USA, with ongoing development of case law. Challenges to transfer pricing regulations will likely increase given a recent US Supreme Court decision weakening judicial deference to regulations generally. 14.2 Significant Court Rulings Some recent court rulings with a significant impact on US transfer pricing rules include: • 3M Co v Commissioner , in which the Eighth Circuit rejected transfer pricing adjustments based on “blocked income” subject to foreign payment restrictions; • Altera Corp v Commissioner , in which the Ninth Circuit upheld regulations requiring stock-based compensation in CSAs; • Eaton Corp v Commissioner , in which the Sixth Circuit limited the IRS’s ability to cancel APAs; • Medtronic, Inc v Commissioner , in which the Eighth Circuit rejected an unspecified method somewhat similar to a CUT; • Coca-Cola Co v Commissioner , in which the US Tax Court applied the CPM and rejected taxpayer arguments based on reliance on long-standing and previously approved methods (an appeal is pend - ing); and • Facebook v Commissioner , in which the US Tax Court upheld the use of the income method for valuing platform contributions (litigation is continu - ing and an appeal is possible). 15. Foreign Payment Restrictions 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions The USA does not restrict outbound payments relating to uncontrolled transactions.
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