The following list covers some of our representative engagements. In a typical engagement we provide an economic analysis of the market in which each client operates, which gives a framework for the analysis used in the report and the basis of any recommendations.
We have also worked with clients to ensure that payments associated with any outbound transfers of IP remain in compliance with the "commensurate with income" standard of Section 482 of the Internal Revenue Code. In the five-year period following an IP transfer, we analyze the income of the acquiring entity and demonstrate that the price paid for the IP was commensurate with the income earned by the acquiring company. In some cases, we recommend a "true-up" where the commensurate with income standard test might otherwise fail.
Our economists have worked to integrate merged or acquired firms and establish arm's-length transfer pricing for goods, services and IP. In one case, we worked with a multinational manufacturing entity subsequent to the acquisition of a large European competitor. The client operated in an industry with extensive excess capacity and a limited number of rival firms. The client acquired the factories of a firm exiting the industry and had extensive operating losses as factories were closed and capacity was reduced.
Altus made a series of comparability adjustments designed to account for the significant excess capacity and the associated impact on the market price for the manufactured product. With these adjustments, our analysis demonstrated the arm's-length character of intercompany pricing in the merged entity in the presence of operating losses throughout the merged firm.
Altus has also worked with a large firm formed from the merger of a US and a European entity and developed a policy for cross-licensing the respective IP of the two firms. We also analyzed the transfer pricing for transactions involving intercompany services and the transfer of tangible property.
Our economists have worked with a pre-IPO telecom firm to establish arm's length transfer pricing and to provide a presentation of the policy to the investment bankers working on the subsequent IPO. We later established an intercompany pricing policy for the multiple legal entities in the worldwide operations of the firm, based upon the applicable tax treaties and income sourcing issues under US telecom tax law. The transfer pricing was designed to limit risk of an income adjustment by a tax authority based upon an assertion of a permanent establishment or additional US sourced income.
Our economists have extensive experience with Advance Pricing Agreements (APAs), beginning with work in the IRS as an economist assisting with APA negotiations. Our team has worked on a number of APAs, and we can provide a range of assistance to clients seeking an APA. We can oversee the drafting and help negotiate both bilateral and unilateral APAs.
We can also provide supplementary assistance, such as a second opinion or helping clients who have retained other firms, but need a new firm to take over the APA negotiation. For example, our economists have negotiated APAs in cases where we did not author the APA submission. In these cases, we help clients with APAs that are becoming too costly or have other problems.
Our team has assisted many clients with defense of transfer pricing under IRS examination. We have also worked with clients to draft a protest of a proposed adjustment and to present this to an Appeals Officer. Additionally, we have worked many cases under privilege in support of counsel, including litigation support of tax cases.
In one case, we worked to respond to queries by the NTA in support of a bilateral USA-Japan APA. We have helped clients subject to double taxation with Competent Authority negotiations and other related treaty issues.
In the case of one client seeking an APA, we were able to use the APA negotiations to gain a concession from the IRS. The client had three open years under IRS examination with a proposed adjustment of over $50 million. We were able to use the APA negotiations as a forum to demonstrate that the proposed adjustment was based upon a precluded method in the final Section 482 regulations. The IRS concurred, and the proposed adjustment was reduced by $25 million.
We have also assisted clients with transfer pricing under examination by foreign tax authorities. We have worked on many US-Canada issues and other tax cases with transactions between the US and countries such as the UK, Germany and Japan (as well other countries with US tax treaties).,/p.
In some cases, we provide documentation under the OECD Transfer Pricing Guidelines for non-US entities, generally as a counterpart to US Section 482 documentation. We have extensive experience performing worldwide studies, and we can provide our clients with studies under the OECD Transfer Pricing Guidelines as well as Section 482 of the Internal Revenue Code.
In one study, we set intercompany pricing for a large telecom firm offering services in over 200 countries. In other cases, these studies were a component of a larger supply chain management engagement.
Our team has worked with a number of large firms to revise their supply chain management. In many cases, these plans alter the functions performed by the various legal entities. A key part of these supply chain studies is a transfer pricing study in which the appropriate arm's-length compensation is set based upon the change in economic functions. Generally, these supply chain studies will involve multinationals with operations in one or more OECD trading partners. We typically draft a report under the OECD Transfer Pricing Guidelines for non-US entities to complement the US study done under Section 482.
Our economists have assisted a range of clients in the formation of holding companies for a firm's intangible property (IP holding companies). These clients include a large, multinational electronic contract manufacturing firm, a multinational manufacturer of process controls, a financial services provider and a consumer electronics firm.
Some IP holding companies have been challenged, as tax authorities attempt to show these are lacking in substance and motivated by a firm's desire for a reduction in overall taxes. In our work on IP holding companies, we begin by demonstrating the economic basis for the formation of a holding company. We demonstrate that formation of an IP holding company is generally needed if a firm is to maximize the return on IP, and thus maximize shareholder value. We demonstrate that for a group of commonly controlled entities, there are fundamental economic benefits from having unified control and sole responsibility for IP in a single entity.
In addition to providing the royalty structure to set arm's-length licensing fees for the IP, we also provide a business plan for management of the IP on a going forward basis with recommendations designed to protect and further enhance the value of IP. Our reports establish the business purpose for the holding company and polices required to provide ongoing economic substance.
In many cases, our economists are retained by counsel and our report complements the recommendations of counsel on the operation of the holding company and steps to protect the value of the IP. In each case, we give recommendations as to an IP management policy that will help ensure adequate legal protection of the IP and a basis for defense of any challenge by tax authorities.
Our economists have worked with a broad range of clients toward the adoption of cost sharing arrangements under Section 482 of the Internal Revenue Code. These engagements have taken place with a number of firms in Silicon Valley since 1998. In this work, we have developed several approaches to establish arm's-length "buy-in" payments for pre-existing IP and methods of funding ongoing IP development.
ALTUS ECONOMICS
ALTUS GLOBAL TRANSFER PRICING NETWORK
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Altus Economics, Inc.
195 South C Street, Suite 110
Tustin, CA 92780
email: altus.info@altusecon.com
Phone: 714-731-6093
Winner of "2016 Best Transfer Pricing Services - USA"
- Acquisition International 2016 Tax Awards.
