Best method rule Sample Clauses

Best method rule. (1) In general. The arm’s length result of a controlled transaction must be determined under the method that, under the facts and circumstances, provides the most reliable measure of an arm’s length result. Thus, there is no strict priority of methods, and no method will invariably be considered to be more reliable than others. An arm’s length result may be determined under any method without establishing the inapplicability of another method, but if another method subsequently is shown to produce a more reliable measure of an arm’s length result, such other method must be used. Similarly, if two or more applications of a single method provide inconsistent results, the arm’s length result must be determined under the application that, under the facts and circumstances, provides the most reliable measure of an arm’s length result.” As with so many federal income tax issues, the guidance in the Internal Revenue Code applicable to transfer pricing circles right back to our starting point, which in this case is the Advance Pricing Agreement Program. Without an APA, no taxpayer can rely on their methodology used to record transactions involving related- party pricing. Since the only safe zone in the arena of transfer pricing seems to be obtaining an APA, it is appropriate to examine the process for obtaining one, but it is important to understand that the “safety” afforded by an APA may apply only to IRS treatment. There is always another taxing authority in a transfer pricing transaction, and that other taxing authority may or may not agree to the APA negotiated by the IRS. Obtaining an APA is expensive. The unofficial base price (the filing fee) to accompany an APA application to the IRS is $50,000,16 however costs of internal administrative work, consulting fees, legal assistance, travel, and final fees paid to the IRS (and also to another taxing authority) can significantly exceed the base filing fee.17 The IRS, however, has determined that compliance with section 482 is “not a significant regulatory action [because] … few small entities are expected to enter into cost sharing agreements [covered by an APA]”.18 In other words, the IRS is saying that only large multi-national businesses (who presumably can afford the expense) will have occasion to apply for an APA, so the high cost will not be an encumbrance to small businesses. Although this IRS presumption is patently unrealistic, the Small Business Administration, when asked to comment on the impact of se...