Contents - AL-Tax

3.7 Global Dealing Regulations and Notice 94–40 43management activities, in a particular financial product or line of financial products,in multiple tax jurisdictions and/or through multiple participants ... The taking ofproprietary positions is not included within the definition of a global dealing operationunless the proprietary positions are entered into by a regular dealer in securitiesin its capacity as such a dealer ...” 44 The proposed global dealing regulations donot encompass commodities, although “the IRS solicit[ed] comments on whetherthese regulations should be extended to cover dealers in commodities ...” 45 To date,these regulations have not been finalized. Moreover, financial transactions in whichmembers of a global dealing operation engage are expressly exempted from theTemporary Regulations issued under Treas. Reg. Section 1.482-9T in 2006, whichmight otherwise have provided useful (and much-needed) guidance:Pending finalization of the global dealing regulations, taxpayers may rely on the proposedglobal dealing regulations, not the temporary services regulations, to govern financial transactionsentered into in connection with a global dealing operation as defined in proposedSection 1.482-8. Therefore, proposed regulations under IRC Section 1.482-9(m)(5) issuedelsewhere in the Federal Register clarify that a controlled services transaction does notinclude a financial transaction entered into in connection with a global dealing operation. 46Hence, global commodities and financial products trading firms have been ina regulatory limbo of sorts with regard to transfer pricing matters. Notice 94–40is not expressly relevant outside the context of an APA, and the proposed globaldealing regulations exempt global traders of non-financial products, as noted, aswell as firms that engage exclusively in proprietary trading activities. Further, theweight that one should attach to proposed regulations, as distinct from temporaryregulations, is somewhat unclear. As such, global trading firms have been facedwith even greater uncertainty in the transfer pricing arena than firms engaged inother types of economic activity (and they were among the first to avail themselvesof the APA option when it was introduced).3.7.2 Description of Notice 94–40 and Proposed Global DealingRegulationsNotice 94–40 states that, in the APAs that the IRS has concluded with functionallyfully integrated global traders, all parties (the IRS, the taxpayer and the relevanttreaty partner) agreed that worldwide income for each global book covered by theAPA should be allocated among the taxpayer’s trading locations pursuant to a profitsplit method that is keyed to three critical factors:44 See Prop. Treas. Reg. Section 1.482-8(a)(2).45 Ibid.46 See IRS Final, Temporary Rules on Services Treatment Under Section 482, Allocation of Incomeand Deductions From Intangibles, Stewardship Expenses, 26 CFR Parts 1 and 31, RIN 45-BB31,1545-AY38, 1545-BC52, “Explanation of Provisions,” Item 12, Coordination with Other TransferPricing Rules – Temp. Treas. Reg. Section 1.482-9T(m).