So You Think You're In Control: When Do Transfer Pricing Rules Apply?

Do the transfer pricing rules apply to your transaction? If you are asking that question because adjusting transfer prices could reduce your tax bill, the answer likely is “yes.” If mispricing a transaction could yield tax benefits, the opportunity to obtain those tax benefits evidences “control,” likely causing the transfer pricing rules to apply. To most clients, this answer seems backward. Shouldn't you first establish whether the situation is subject to transfer pricing rules and, if so, evaluate how those rules apply? But this formulation – if mispricing occurs and a tax benefit is thereby obtained, the transfer pricing rules likely apply – is consistent with the transfer pricing regulations and with U.S. case law.