Seminal Court Cases and Their Impact on Transfer Pricing ... - NABE

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U.S. Steel (2d Cir. 1980, rev’g Tax <strong>Court</strong>) Primacy of Internal CUPs • USP purchased shipping services from FSub • Prices equal to prices charged to uncontrolled companies for shipping of much smaller quantities • USP could have procured services for less • <strong>Court</strong> adopts internal CUP analysis • Consider viability of decision post 1994 regulations <strong>and</strong> “realistic alternatives” st<strong>and</strong>ard 4
du Pont (Ct. Cl. 1979, aff’g Ct. Cl. trial dec. 1978) Use of Financial Ratios • USP sold goods to distributor (FSub) • At trial, taxpayer justified prices based on resaleminus analysis <strong>and</strong> on industry-average gross margins • IRS experts noted FSub’s relatively low selling costs over net sales, <strong>and</strong> other differences with comps • IRS experts supported IRS adjustment with analyses based on operating margin <strong>and</strong> return on capital • <strong>Court</strong> sustains IRS adjustment <strong>and</strong> foreshadowed multiple features of modern transfer pricing analysis 5
Page 1 and 2: Seminal Co
Page 3: Caveat Lector • Decided transfer
Page 7 and 8: Bausch & Lomb (2d Cir. 1991, aff’
Page 9 and 10: Compaq (Tax Court
Page 11 and 12: DHL (9th Cir. 2002, aff’g & rev
Page 13 and 14: Veritas (Tax Court
Page 15: Future of Tax Litigation • Outsid

Seminal Court Cases and Their Impact on Transfer Pricing ... - NABE

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