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The American Bar Association Section of Taxation April 23 urged the Internal Revenue Service in final regulations on intercompany services and intangibles (T.D. 9278) to broaden the application of the temporary rules' cost safe harbor, amend the rules' provisions for shared services arrangements, and alter several of the pricing methods in the provisions, among other changes.
The ABA tax section's written comments, released nine months after the IRS's temporary Section 482 services rules, commended the agency for delaying the provisions' effective date and expanding the list of services eligible to be charged at cost in a December 2006 notice and revenue procedure. Notice 2007-5, 2007-3 I.R.B. 269, postponed the application of the rules to years beginning after Dec. 31, 2007, except for a provision that calls on taxpayers to use their business judgment to define what services can be charged at cost, and Rev. Proc. 2007-13, 2007-3 I.R.B. 295, increased the number of specified services covered by the safe harbor-the new services cost method, or SCM-from 48 to 101 (15 Transfer Pricing Report 643, 1/3/07).
The tax section's comments appear in the Text section of this issue.
The temporary rules, issued in July 2006, replace a controversial method for low-margin services contained in the version of the rules proposed in 2003 with a method allowing them to be charged at cost if, in the taxpayer's "business judgment," they "do not contribute significantly to key competitive advantages, core capabilities or fundamental risks of success or failure in one or more trades or businesses of the Tenderer, the recipient, or both." Services meeting this "significant contribution" test may be charged at cost under the SCM if they:
* are one of the 101 services described in Rev. Proc. 2007-13; or
* require a median comparable arm's-length markup of 7 percent or less (15 Transfer Pricing Report 203, 8/2/06).
Significant Contribution Test. The ABA tax section said it was not aware of any reason for treating a service that otherwise qualifies for the SCM differently based on...