Transfer Pricing: New Rules for Services and Intangibles

In September, the IRS proposed important changes to the cross-border transfer pricing rules. The proposal not only tailors existing transfer pricing methods to fit the particular shape of 'service' transactions better, but also shifts analytical emphasis away from a transaction's label and onto its economic characteristics. Greater harmony with OECD rules is intended. Under the new rules, contractual documentation of the respective rights and responsibilities for all kinds of transactions will be critical.

The proposal should also change the way multinational businesses allocate income from intangible property. Although the true dimensions of this conceptual shift remain to be seen, it would require multinationals to identify, isolate and value contributions made by group members to centrally owned intangibles as to well as various rights in the intangibles.