Cross-Border Lending of Related Parties Requires Attention be Given to Transfer Pricing and Earnings Stripping Rules

Cross-Border Lending of Related Parties Requires Attention be Given to Transfer Pricing and Earnings Stripping Rules

Tax Law
By Anthony Diosdi Cross-border lending is a common business practice with groups of related corporations. However cross-border lending requires attention be given to the transfer pricing and earnings stripping rules. The Internal Revenue Service (“IRS”) has broad powers to recharacterize “any multi-party financing transaction as a transaction directly among any two or more of such parties where the Secretary determines such recharacterization is appropriate to prevent the avoidance of any tax imposed by this title.” See IRC Section 7701(1). We will begin our discussion with a look at how the transfer pricing rules impact cross-border lending.Transfer Pricing Rules for Cross-Border Lending of Related PartiesFor transfer pricing purposes, controlled entities generally must charge each other an arm’s length rate of interest on any intercompany loans or advances. See Treas. Reg. Section…
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Transfer Pricing for Tangible Property

Transfer Pricing for Tangible Property

Tax Law
By Anthony Diosdi IntroductionTransfer pricing must be taken into consideration by any business involved in cross-border transactions. Although many have heard of the term “transfer pricing,” few understand how transfer pricing works. This article is designed to provide the reader with a very basic understanding of how transfer pricing works. To understand transfer pricing we must think of the operating units of a multinational corporation. Multinational corporations usually engage in a variety of arrangements of intercompany transactions. For example, a U.S. manufacturer may market its products through foreign marketing subsidiaries. A domestic parent corporation may provide managerial, technical, and administrative services for its subsidiaries, and may license its manufacturing and marketing intangibles to its foreign subsidiaries for commercial exploitation abroad. A “transfer price” must be computed for each of these…
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Transfer Pricing for Intangible Property

Transfer Pricing for Intangible Property

Tax Law
By Anthony Diosdi IntroductionTransfer pricing must be taken into consideration by any business involved in cross-border transactions. Although many have heard of the term “transfer pricing,” few understand how transfer pricing works. This article is designed to provide the reader with a very basic understanding of how transfer pricing works. To understand transfer pricing we must think of the operating units of a multinational corporation. Multinational corporations usually engage in a variety of arrangements of intercompany transactions. For example, a U.S. manufacturer may market its products through foreign marketing subsidiaries. A domestic parent corporation may provide managerial, technical, and administrative services for its subsidiaries, and may license its manufacturing and marketing intangibles to its foreign subsidiaries for commercial exploitation abroad. A “transfer price” must be computed for each of these…
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