Contents - AL-Tax

11.3 Analysis Under Existing Regime 155Moreover, one individual functions as the head trader of alumina and aluminum,with oversight responsibility vis-a-vis the other traders in all locations. Traders’discretionary bonuses are based on the Group-wide P&L for alumina and aluminum.11.2 Transfer Pricing IssuesWith regard to natural gas, intercompany transactions are largely limited to services(origination, scheduling and key support functions). As previously noted, the limitedintercompany transactions in natural gas between USS and CAS take place at indexprices, which constitute CUPs. With respect to alumina and aluminum, the group isa “functionally fully integrated” trading operation.11.3 Analysis Under Existing RegimeThe analysis of natural gas services under the current transfer pricing regime iscomparatively straightforward. As noted, most trading houses utilize independentmarketers in certain geographic markets, to supplement the efforts of employeeswho perform the same origination function internally. Compensation paid to thirdparty marketers constitutes arm’s length consideration for the origination functionsperformed by one Group member on behalf of another. Most trading firms performlogistics functions solely internally. However, Non-Vessel Operating Common Carriers(NVOCCs), which arrange for the transport of product but do not own transportationassets themselves, are reasonably good comparables.The support services that FP renders to other Group members are also amenableto comparables-based analyses. For this purpose, we distinguish between lowerand higher value-added services. To some degree, these distinctions are necessarilyguided by the particular mix of services that standalone services providers render.Thus, for example, if standalone companies combine IT customization and creditrisk assessment services under one roof, the corresponding intercompany servicescan be combined for analytical purposes as well. (As discussed below, we utilizea formulary apportionment methodology to allocate the Group’s alumina and aluminumtrading profits, and include a measure of administrative support in the formula.As such, services fees should not be charged on these product lines.)The more challenging part of this transfer pricing analysis pertains to the tradingof alumina and aluminum. As a functionally fully integrated trading operation, theGroup has only Notice 94–40 and the proposed Global dealing regulations 6 to relyon in determining the arm’s length allocation of its income among taxing jurisdictions.As discussed in Chapter 3, Notice 94–40 details the formulary apportionmentmethodologies that have formed the basis of global trading firms’ APAs withthe IRS, and the proposed global dealing regulations expand upon and generalizethese methodologies. To reiterate, allocation formulas generally consist of threefactors:6 As previously noted, these regulations do not even technically apply to commodities traders.