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ARTICLE · 15 MARCH 2024

IRS Transfer Pricing Memo On Implicit Support Has Legal Flaws

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The Treasury Regulations do not expressly require taxpayers to consider implicit support when pricing intercompany loans.

United StatesTax
Steven R. Dixon
Steven R. Dixon
Amanda Pedvin Varma
Amanda Pedvin Varma

Partners Steve Dixon and Amanda Pedvin Varma co-authored an article in Bloomberg Tax titled "IRS Transfer Pricing Memo on Implicit Support Has Legal Flaws." The article suggests that multinational enterprises that are facing IRS transfer pricing adjustments to their intercompany lending rates based on implicit support have grounds to challenge the IRS's legal reasoning.

The Treasury Regulations do not expressly require taxpayers to consider implicit support when pricing intercompany loans. In December 2023, the IRS Chief Counsel issued a generic legal advice memorandum (AM 2023-008) aimed at filling that gap. The GLAM says that when pricing intercompany debt that a US subsidiary owes to its foreign parent, the arm's-length standard permits the IRS to increase the interest rate as needed to account the implicit support that the foreign parent would presumably provide to the US borrower. At the same time, the GLAM rejects the notion (advocated by some taxpayers) that

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