Contents - AL-Tax

Chapter 6Intercompany Sale of Medical DevicesOur second case study involves a medical device company headquartered in theUnited States that recently acquired one of its opposite numbers in Germany. TheU.S. parent company has begun to import certain products in small volumes fromits German affiliate, and anticipates exporting other devices to the latter in thenear future. We analyze the various transactions in this case under the resale pricemethod, the comparable uncontrolled price method, the comparable uncontrolledtransactions method and the numerical standards approach, and consider the meritsand shortcomings of existing and proposed methods, respectively, in this context.6.1 Summary of Key FactsThe U.S. parent company in this case study (“USP”), a relative newcomer in itsmarket, has rapidly developed a portfolio of best-in-class inpatient and outpatientmonitoring devices and systems. It initially specialized primarily (albeit not exclusively)in the design, marketing and sale of monitoring devices for use in outpatientsettings. These products are manufactured by a third party subcontractor (“CompanyX”) on a fee-for-service basis. USP also designs and sells a limited range ofin-hospital patient monitoring systems. It fabricates these products internally.USP recently expanded its product offerings substantially through third partylicensing arrangements and acquisitions of established companies. It entered intolicensing and distribution agreements with two unaffiliated companies, whichgranted USP certain global development, sales and distribution rights to a proprietarygas analyzer used to measure the concentration of anesthetic agents duringsurgery, and a system designed to measure lung function during ventilation. Oneof the acquired companies, based in Germany, designs, manufactures and sellsstate-of-the-art multi-parameter monitoring systems for use in surgical and criticalcare venues. It also manufactures and sells a small number of outpatient monitoringdevices, most of which have essentially the same functionality as certain of thoseoffered by USP. The acquired German company has been organized as a whollyowned subsidiary of USP, and is henceforth referred to as “FS”.E. King, Transfer Pricing and Corporate Taxation,DOI 10.1007/978-0-387-78183-9 6, C○ Springer Science+Business Media, LLC 200989