USA Law and Practice Contributed by: Kim Marie Boylan, Nicholas Wilkins, Christina Culver and Kiara Williams, White & Case LLP
11.4 Financial Transactions The USA has specific rules governing intercom - pany loans. Treasury Regulation Section 1.482- 2 provides methods for determining an arm’s length interest rate on bona fide indebtedness between related parties. The regulation provides safe harbour provisions under certain circum - stances. There are many other Code sections that could impact the tax treatment of intercompany finan - cial transactions. They are too numerous to cov - er here, but include Section 163(j) of the Code (limitation on business interest) and Section 267A of the Code (certain related party amounts paid or accrued in hybrid transactions or with hybrid entities). 12. Co-Ordination With Customs Valuation 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation The co-ordination of tax and customs obliga - tions has long frustrated taxpayers and authori - ties. Transfer pricing and customs laws and reg - ulations operate in mostly separate frameworks and are not always in alignment. Under Section 1059A of the Code and its regulations, federal income tax law requires that – where related parties import property directly or indirectly into the USA – the transfer price used for income tax purposes generally must not exceed the declared value for customs purposes, subject to certain exceptions discussed here. Specifically, the customs value generally caps the amount a US taxpayer may claim as a basis or inventory cost of the imported property. That is, customs value generally provides a ceiling on transfer pricing valuation for federal income tax purpos -
at cost in certain circumstances. The method evaluates whether the amount charged is arm’s length by reference to the total services costs with no mark-up. So long as the taxpayer applies the SCM in accordance with the regulation, the method will be considered the best method and any IRS allocations will be limited in the adjust - ments it can make. To qualify for the SCM, the service must: • be a covered service (generally services that do not involve a significant median compara - ble mark-up of more than 7%); • not be on the regulation’s list of excluded activities; • meet the business judgment rule, requiring the taxpayer to reasonably conclude that the service does not contribute significantly to certain competitive advantages, core capa - bilities, or fundamental risks; and • be supported by the taxpayer’s maintenance of adequate books and records. 11.2 Rules on Savings Arising From Operating in the Jurisdiction Treasury Regulation Section 1.482-1(d)(3)(iv)(E) contains the rule governing savings that arise from operating in the USA (as well as any other location). The rule does not dictate how savings should be treated but, rather, takes location- specific costs into consideration in determining the degree of comparability between controlled and uncontrolled transactions when evaluating the economic conditions that could affect pric - ing or profit. 11.3 Unique Transfer Pricing Rules or Practices The USA does not have any unique rules disal - lowing marketing expenses by a local entity that is a licensee claiming local distribution intangi - bles.
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