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Simple Example – Correlative AdjustmentIntangible LicenseUSPRoyaltyCFC• Year 1 – CFC pays royalty to USP for intangible license• Year 2 – USP files return for Year 1• Year 3 – IRS determines $100x increase in royalty for Year 1• Then Correlative Adjustment to E&P of CFC for U.S. tax purposes• Potential impact on dividend characterization in Year 1 or futureyear• Potential impact on Subpart F inclusion in Year 1 or future year• Potential impact on section 902 credits10
Interaction Between §482 and Foreign Tax Credits To be creditable, foreign tax must be “compulsory” A tax is not considered compulsory if it exceeds liability under foreignlaw Taxpayers expected to exhaust “all effective and practical remedies”to reduce, over time, foreign tax liability. Treas. Reg. §1.901-2(e)(5). Rev. Proc. 92-75 – Following §482 primary adjustment, §902 tax poolreduced because taxpayer failed to pursue available competentauthority relief Obligation with respect to adjustments related to non-treatycountries?11
Page 1 and 2: TP Audit Procedures and Adjustments
Page 3 and 4: Burden of Proof - Transfer Pricing
Page 9: Correlative Adjustments A working d
Page 13 and 14: Rev. Proc. 99-32 Rules Election to
Page 15 and 16: Simple Example - Rev. Proc. 99-32 D
Page 17 and 18: Transfer Pricing Information - IRS

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