Recent U.S Transfer Pricing Decisions Viewed as Favourable to Taxpayers

On December 10, 2009, the United States Tax Court rejected the position taken in an Internal Revenue Service (IRS) deficiency notice in the transfer pricing area in a decision that has been viewed as favourable to taxpayers. In Veritas Software Corp. et. al. v. Commissioner,¹ the Court concluded that the taxpayer had not understated the "buy-in" value of intangible property transferred to its Irish affiliate in conjunction with establishing a cost-sharing arrangement (CSA). While all transfer pricing cases are inherently fact-specific, and Veritas relates to Treasury regulations which have since been superseded,² this IRS defeat coupled with a similar defeat in Xilinx v. Commissioner³ suggests that IRS theories which place a high value on outbound transfers of intangible property are being met with a skeptical audience in the U.S. Tax Court. Looking ahead, Veritas may inform the treatment of CSAs under the new regulations and influence whether certain pending