As the year comes to a close, we have a natural tendency to reflect on the past twelve months. This year has been exciting and challenging. Brexit. Summer Olympics. The U.S. presidential elections. This also has been an exciting and challenging year for international tax professionals deciphering recent guidance. The Internal Revenue Service restructured the Large Business and International (LB&I) Division. The OECD published more guidance on international tax. The Tax Court decided Medtronic.1
The OECD, the IRS, and the Treasury Department have recently kept international tax professionals on our toes with respect to intangibles, particularly because the international tax community was absorbing and analyzing both the OECD’s Final Reports for Action Items 8 through 10 and the IRS and the Treasury’s Section 367(d) guidance, both of which were issued last fall. OECD base erosion and profit shifting (BEPS) presentations have dominated international tax conferences. Country-by-country (CbC) reporting and development, enhancement, maintenance, protection, and exploitation of intangibles (DEMPE) functions have taken over cocktail discussions. There is a lot of uncertainty as to how these new rules will be used (or interpreted) by tax authorities around the world.
In this article, we provide key international tax developments over the past year that affect intangibles and offer suggestions for minimizing related challenges.
LB&I Restructuring
Given the increased importance of international issues, the historic divide between domestic and international divisions of LB&I didn’t make sense. As a result, LB&I implemented a new “one LB&I” structure in February 2016, which will take two to four years to implement fully. There were multiple reasons for this restructuring, apart from LB&I’s shrinking workforce and budget reductions. Changes in LB&I’s audit approach were required, because better issue selection on audit was needed, and the IRS did not routinely deploy resources effectively. Evidence lies in the IRS’ lost court cases and the fact that the vast majority of double-tax cases in the Advance Pricing and Mutual Agreement (APMA) program are foreign-initiated.2 In addition, better issues had to be identified and a more agile approach was needed, with the ability to drop issues and move on if necessary. Also, the old method of selecting an income tax return to audit federal and international issues often meant finding out too late in the audit cycle that a specialist, such as an engineer or economist, was needed. Often there was no specialist available.
The new method for conducting audits is identifying the issue (called campaigns) first, and then selecting the returns likely to demonstrate these issues. Campaigns will be deployed only if the right resources are available, with the “right” team and the “right” training in place to address the specific issue. The IRS’ goal in restructuring is to drive compliance and to be transparent about campaigns and how issues will be tested. While taxpayers certainly appreciate advance notice of the audit issues important to the IRS, many taxpayers are worried that LB&I will take a cookie-cutter approach to issues and will not treat each issue based on the facts specific to each taxpayer.3 Given that IRS intangible audits should be more focused and strategic as a result of the reorganization, to address these campaigns successfully, companies should carefully document and corroborate their intercompany pricing with their specific facts, distinguishing themselves from the basic facts of the campaigns with specific examples when warranted.
Because audits involving intangibles are particularly difficult, LB&I released several International Practice Units (IPUs) related to intangibles in 2016. The IRS focuses on intangible property transactions during audits because they are often high value, and intangibles are viewed as “portable” to other jurisdictions. The IPUs are training guides and directives that include step-by-step instructions on how to examine a given issue. The units show detailed examples and include toolkits with documents needed to perform the audit, such as sample information document requests (IDRs) and links to related-issues IPUs. It is important for companies to review the IPUs that involve issues that affect their transactions, analyze sample IDRs, and watch for new campaign announcements.
Cost-Sharing Arrangement IPUs
In February 2016, the IRS released two new IPUs related to CSAs, both of which entail changes to an existing CSA.4 The first CSA IPU, titled “Change in Participation in a Cost-Sharing Arrangement (CSA)—Controlled Transfer of Interest and Capability Variation,” was released on February 4, 2016. It provides guidance for analyzing a CSA when there is a change in participation that alters the participants’ interests under the CSA. A change in participation under a CSA occurs when there is either a controlled transfer of interest or a capability variation among participants. Both changes in participation may require an arm’s-length payment.
When a transfer of interest or a capability variation occurs, the controlled participant’s reasonably anticipated benefit (RAB) share that results from exploiting the cost-shared intangibles changes. An example in the IPU that provides for a capability variation is the purchase of an additional manufacturing plant by one of the participants, which was not expected at the start of the CSA. The additional plant would typically result in an increase in the RAB share for the participant. The change in RAB share due to the additional plant would constitute a controlled transfer of interest in cost-shared intangibles and would require an arm’s-length payment. The participant whose RAB share decreases is considered the transferor, and the participant with an increased RAB share is the transferee.
The primary issue with a change in participation that results in a controlled transfer of interest or capability variation is calculating the arm’s-length payment that would be required for the incremental change in the RAB shares between the transferor and the transferee. The IPU points out that it is important to determine which controlled participants are affected and whether there is a federal income tax consequence with respect to the change. If a U.S. participant is a party to a participation change and was the transferor of cost-shared intangibles, it would be expected to report the arm’s-length payment received for the transfer as taxable income. Conversely, if the U.S. participant was the transferee, then there would be a deduction for the arm’s-length payment made to another cost-sharing participant (transferor).
The second CSA IPU, titled “Pricing of Platform Contribution Transaction (PCT) in Cost-Sharing Arrangements (CSA) Acquisition of Subsequent IP,” was released on February 8, 2016. This IPU provides guidance for pricing a PCT when a participant in a CSA acquires a company after entering the CSA. A PCT would be required for any intellectual property (contributions are resources, capabilities, and rights) owned by the acquired company that are anticipated to contribute to intangible development within the CSA. The other controlled participant in the CSA must make a PCT payment at arm’s length to the acquiring party. The IRS believes there are significant issues related to subsequent acquisition transactions including, for example, taxpayers attempting to carve out goodwill and workforce in place as noncompensable intangibles. The IRS will look carefully to test whether there was a reasonable anticipation that any of the acquired resources, capabilities, or rights would contribute to intangible development covered by the CSA and whether a PCT reflecting arm’s-length compensation occurred.
If the PCT payments are not considered to be arm’s length, the income resulting from exploiting the acquired platform contributions may be shifted offshore to low- or no-tax jurisdictions. This IPU provides steps for the IRS to set up an adjustment. The RAB shares may change as a result of a subsequent PCT if the subsequent PCT disproportionately benefits one controlled participant over another.
Given that LB&I seeks areas where it has resources and training readily available, and given the importance of intangible transactions from a tax authority’s perspective, both IPUs may tie into future LB&I campaigns. These are two examples where LB&I has deployed the training. Companies with CSAs in place should review these IPUs, ensure their documentation addresses the specific issues raised in each IPU, and review the related IDRs. For example, if you have a CSA, and one participant acquired a company that was not added to the CSA, you should prepare documentation for the reasons for the acquisition and an explanation as to why there were no resources, capabilities, or rights to be exploited by the cost-sharing participants.
Residual Profit Split Method IPU
In February 2016, the IRS released an IPU on determining when to use a residual profit split method for evaluating whether a related-party transaction is priced at arm’s length. In this IPU, the IRS cautions that the Residual Profit Split Method (RPSM) is best used when both parties have made a significant nonroutine contribution; if only one party makes a nonroutine contribution, then the RPSM should not be used. The IRS also warns that another transfer pricing method consistent with the 482 regulations will be used when determining the market rates of return for routine contributions. Last, the IRS notes that the RPSM is generally not suitable if only one party has incurred intangible development costs, and the allocation of profits is based on costs rather than on market benchmarks.
This IPU lets agents know that it is important to consult with the appropriate personnel (e.g., an economist or engineer) as early as possible when dealing with an RPSM. Consultation with appropriate personnel may be required to determine if the comparables selected are actually comparable in establishing a market rate of return. An economist can be helpful to the IRS to review and calculate necessary adjustments to make the comparable data more reliable. Last, this IPU provides that agents should consult with appropriate personnel if there is a question about which controlled party owns particular nonroutine contributions.
Unlike the CSA IPUs described above, this IPU alerts agents to the impact of potential adjustments by informing agents that taxpayers may have access to relief from double taxation under the Mutual Agreement Procedure (MAP) of a relevant treaty if an adjustment causes double taxation. In addition, it is mandatory to keep both countries’ statutes of limitations open and to provide the taxpayer with information on the Competent Authority process. Agents are also instructed to consult with APMA if the taxpayer seeks such relief. The specific reference to MAP in this IPU may be due to concern that tax authorities outside of the United States interpret the OECD’s profit split guidance as encouraging the use of profit splits.
Taxpayers should pay careful attention to what constitutes a nonroutine intangible. If both parties to a controlled transaction do not use their own nonroutine intangibles, companies should ensure that they have documented their reasons for selecting the residual profit split method.
OECD — BEPS Action Item 8
Last October, the OECD issued the Final Report on Action 8 of the BEPS Action Plan to create new rules for the migration of intangible assets. Some tax administrations perceive that a multinational enterprise can cause base erosion by using transfer pricing arrangements on intangibles to shift profits from high-tax jurisdictions to low-tax jurisdictions. Action 8 defines intangibles for purposes of transfer pricing as “something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances.”
Determining the Value of Intangibles
Tax administrations have faced difficulties in verifying the arm’s-length basis on which pricing was determined by taxpayers for transactions involving a specific category of intangibles due to the asymmetry of information.
The comparable uncontrolled price (CUP) method and the transactional profit split (TPS) method are most likely to be useful in determining the arm’s-length basis with respect to intangibles. Generally, one-sided methods are unreliable for directly valuing intangibles but can be used in some circumstances to value intangibles indirectly by determining values for some functions using those methods and deriving a residual value for intangibles. Cost-based methods are generally discouraged, although in limited circumstances the replacement cost method may be used, particularly where the intangibles are neither unique nor valuable.
Concluding that the income was not allocated at arm’s length between the entities in the U.S. consolidated group and their foreign affiliates, the IRS adjusted the U.S. parent’s income for each year at issue without computing the corresponding member-specific adjustments.
The Transactional Profit Split Method
In July 2016, the OECD issued a revised discussion draft related to the TPS method.5 Generally, the TPS method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction.
The TPS method identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged. Then it splits those profits between those enterprises on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm’s length.
The strength of the TPS method is in transactions where both parties make unique and valuable contributions, such as contributing unique intangibles. In this type of transaction, independent parties might wish to share the profits in proportion to their respective contributions. It is more unlikely that either party to the controlled transaction will be left with an extreme and improbable profit. This result would not appropriately reflect each party’s respective contributions in terms of functions, assets, and risks, because the value contributed by both parties is assessed and the profits divided are the actual profits that emerge, rather than a benchmarked profit for one of the parties. This aspect can be particularly important when analyzing the contributions by the parties with respect to the intangibles employed and economically significant risks assumed in the controlled transactions.
This July draft, unlike the October 2015 draft, does not seem to promote or expand the use of profit splits as the best method.6 Instead, it emphasizes the evaluation of contributions and whether there is sharing of risks between the related parties when selecting the best method. Companies should assess if their existing transfer pricing policy is consistent with the new OECD guidance, especially relating to intangibles.
Recent Case Law Related to Intangibles
Recent case law can provide some useful guidance for taxpayers dealing with intangible property issues. These cases highlight the importance of taxpayers being aware of pending cases and developments, particularly as they relate to transactions taxpayers have in audit or appeals.
Medtronic Inc. v. Commissioner
In June 2016, the Tax Court issued an opinion in the transfer pricing case of Medtronic Inc. & Consolidated Subsidiaries (Medtronic).7 At issue in that case were four transactions: (1) the sale of components from U.S. branches of Medtronic Inc. (Medtronic US) to Medtronic Puerto Rico Operations Company (Medtronic PR); (2) the licensing from Medtronic US to Medtronic PR of intangible property needed to manufacture the relevant medical devices; (3) the licensing of Medtronic’s trademark and trade name from Medtronic US to Medtronic PR; and (4) the sale of finished goods from Medtronic PR to Medtronic USA Inc. (Med USA). The IRS sought to aggregate those four transactions and look only at the allocation of overall “system” profits, but the Tax Court rejected that approach and instead determined that: (1) the IRS’ Section 482 adjustments were arbitrary, capricious, or unreasonable; (2) Medtronic’s proffered transfer pricing method, the comparable uncontrolled transaction (CUT) method, was the best method, and the particular comparable transaction proposed by Medtronic could be used and adjusted to determine arm’s-length prices; and (3) no intangibles subject to Section 367(d) were transferred to Medtronic PR.
In 2006, Medtronic and the IRS entered into a memorandum of understanding after the audit of Medtronic’s 2002 year, in which Medtronic PR agreed to pay royalties on its intercompany sales of forty-four percent for certain medical devices and twenty-six percent for leads (the delivery units that allow the devices to work). Also following the 2002 audit, Medtronic agreed to make a Section 367(d) adjustment for intangibles that the IRS asserted were transferred as part of the reorganization of the Puerto Rico operations.
At trial and in its post-trial briefing, the IRS argued that the four intercompany transactions should have been aggregated and evaluated based on a review of the total value chain. Based on this aggregation approach, the IRS did not make adjustments with respect to each of the four transactions, but instead made Section 482 adjustments only to royalties paid pursuant to the device and leads licenses. The IRS advocated for the comparable profits method (CPM) as the best method to determine the arm’s-length royalty rates with respect to those licenses. The court found the IRS approach unavailing and determined that the IRS sought to minimize the contributions of Medtronic PR, contrary to the facts presented at trial.
On the other hand, Medtronic maintained, and the court ultimately agreed, that the separate intercompany transactions should be respected and priced individually. The court agreed that the prices charged for the components and finished goods were arm’s length and accepted the trademark and tradename royalty that Medtronic applied, without adjustment. As for the device and leads licenses, the court concluded that the license agreement between Medtronic US and Siemens Pacesetter Inc., which constituted a settlement between those two parties of multiple lawsuits relating to Pacesetter’s infringement of Medtronic US’ patents for certain devices, could, with appropriate adjustments, provide a reliable measure of an arm’s-length result despite the IRS’ objections that the agreement was not comparable.
Notwithstanding the fact that the IRS had assessed, and Medtronic had accepted, a 367(d) adjustment relating to the reorganization in the prior audit, the IRS proposed a significantly higher adjustment for the same transaction, while providing no additional facts or factual changes to support it.
The court, however, found that the IRS had not identified or even alleged that any specific intangibles were transferred to Medtronic PR by the Section 936 possession corporations, and refused to engage in the baseless speculation urged by the IRS. Accordingly, the court held that no intangibles to which Section 367(d) applied were transferred to Medtronic PR, stating that “the gist of respondent’s argument seems to be that [Medtronic PR] could not possibly be as profitable as it is unless intangibles were transferred to it. We are not persuaded by this argument.”
Perhaps in recognition of the inadequacy of the Commissioner’s Section 367(d) position on the basis of existing law, on September 14, 2015, while post-trial briefing for Medtronic was proceeding, Treasury proposed new Section 367 regulations, eliminating the foreign goodwill exception that has existed since 1986 under Temporary Treasury Regulations Section 1.367(d)-1T(b).8 These proposed regulations in effect seek to codify the government’s litigation position in Medtronic, but may exceed the Commissioner’s authority by requiring compensation for the creation of value that does not constitute intangible property under Section 936(h)(3)(B), as required by Section 367(d) itself.
Guidant LLC v. Commissioner
Guidant LLC et al. v. Commissioner involved Section 482 adjustments totaling almost $3.5 billion to the income of Guidant’s consolidated group and foreign affiliates.9 The parties settled the case in July 2016 by agreeing to adjustments of $975 million for the 2001 through 2007 tax years. The settlement, however, came almost five months after the Tax Court denied the taxpayer’s motion for partial summary judgment, concluding that the IRS is not required to determine the taxable income of every entity within the taxpayer’s controlled group or disaggregate the total adjustments into the amounts attributable to each specific type of transaction.
Guidant is a U.S. corporation and parent of an affiliated group of domestic and foreign companies that design, manufacture, and sell medical devices. The U.S. entities in the Guidant group entered into a number of transactions with related foreign entities in Puerto Rico and Ireland. Similar to the facts in Medtronic, the flow of many products involved what the IRS termed a “round trip” from the United States to Ireland or to Puerto Rico and back. For example, a U.S. entity licensed intangibles to an Irish subsidiary, which manufactured and sold finished medical devices not only to the U.S. entities but also directly to related foreign sales affiliates and to third-party distributors. The U.S. entities also resold the devices to foreign third-party distributors.
The IRS audited the taxpayer’s consolidated returns for 2001 through 2007. Like many multinational companies, Guidant did not maintain and could not provide its financial records in a manner that tracked income and expenses by place of manufacture, or to particular product lines within a business unit, although Guidant did provide to the IRS the underlying data that would allow the IRS to prepare reports in these particular forms. Concluding that the income was not allocated at arm’s length between the entities in the U.S. consolidated group and their foreign affiliates, the IRS adjusted the U.S. parent’s income for each year at issue without computing the corresponding member-specific adjustments. The IRS did not believe that it could independently make reliable member-specific adjustments on the basis of the information provided by the taxpayer, due to the complexity of each member’s activities and their relationship with the activities of other members and foreign affiliates.
The taxpayer filed a motion for partial summary judgment, in which it made two arguments asserting that the IRS’ adjustments were arbitrary, capricious, or unreasonable as a matter of law. The Tax Court rejected both in its opinion issued in February 2016. First, the court rejected the taxpayer’s argument that the Section 482 regulations required that adjustments be made “consistently with the principles of a consolidated return” and that the IRS failed to determine the true separate taxable income of each controlled taxpayer in the Guidant group. The court found that if this were required in every case, it could completely eliminate the IRS’ ability to make Section 482 adjustments when a taxpayer consciously withholds or fails to maintain records of information necessary to determine separate taxable income adjustments. The court also rejected the taxpayer’s argument that the IRS was required to make specific adjustments for each transaction that involved an intangible, a purchase and sale of property, or the provision of services. The court found that the Section 482 regulations clearly state that the IRS may aggregate transactions when doing so provides the most reliable result.
While holding that the IRS’ adjustments were not arbitrary, capricious, or unreasonable as a matter of law, the court concluded that whether the IRS abused its discretion in its aggregate method was a matter of fact that would have to be determined at trial. In fact, as discussed above, the Tax Court in Medtronic held that transactions should be aggregated only in exceptional circumstances, such as where the individual transactions have no independent significance. Thus, whereas the court refused to hold in Guidant that an aggregate approach was always improper, in Medtronic the court made clear that the application of such an analysis must leap over a high bar. Still, despite the taxpayer’s victory in Medtronic, the IRS exam teams will likely continue to push for aggregate transfer pricing methods when they produce a more favorable result for the Treasury.
The OECD, the IRS, and the Treasury have recently kept international tax professionals on our toes with respect to intangibles, particularly because the international tax community was absorbing and analyzing both the OECD’s Final Reports for Action Items 8 through 10 and the IRS and the Treasury’s Section 367(d) guidance.
Altera Corp. v. Commissioner
While courts weighing a transfer pricing dispute rarely grant motions for summary judgment, since transfer pricing disputes are typically fact-intensive, one recent exceptional case was Altera Corp. v. Commissioner.10 In Altera, the Tax Court invalidated the requirement in the 2003 cost-sharing regulations that taxpayers include stock-based compensation in the shared-cost pool. Treasury appealed the decision to the Ninth Circuit in February 2016.
Altera US is the parent of a group of U.S. and foreign companies that develop, manufacture, and sell programmable logic devices as well as related hardware and software. Altera US and one member of the Altera group, Altera International, entered into a cost-sharing agreement under which they agreed to pool their respective resources to conduct research and development. During each taxable year from 2004 through 2007, Altera US granted stock-based compensation to certain employees who performed research and development activities subject to the CSA. These employees’ cash compensation was included in the cost pool under that agreement, but their stock-based compensation was not. The IRS invoked Treasury Regulations Section 1.482-7(d)(2), issued in 2003, to increase Altera International’s cost-sharing payments to Altera US, thereby increasing Altera US’ domestic tax liability.
Treasury and the IRS issued the 2003 regulations in an effort to overrule Xilinx Inc. v. Commissioner,11 which held that under the 1995 cost-sharing regulations, controlled entities entering into qualified cost-sharing arrangements (QCSAs) need not share stock-based compensation because unrelated parties operating at arm’s length would not do so. Like what more recently happened during briefing in Medtronic, during the Xilinx litigation Treasury proposed a regulation that would codify the IRS’ litigation position in that case.12 The proposed rules did not set forth any evidence that unrelated parties would, at arm’s length, share amounts attributable to stock-based compensation. Notwithstanding significant comments submitted on the proposed regulations addressing this issue, Treasury and the IRS issued the 2003 regulation as a final regulation that explicitly required parties to QCSAs to share stock-based compensation costs.
Altera challenged the validity of this regulation, and the Tax Court unanimously held for the taxpayer based on four separate dispositive grounds. First, the court found that the final regulations lacked a basis in fact, because Treasury did not search any database that contained arm’s-length contracts, and its files contained no evidence to support its belief that unrelated parties would share stock-based compensation. Second, Treasury failed to rationally connect the choice it made with the facts found. It treated all QCSAs identically but failed to explain why such treatment was appropriate. Third, Treasury failed to respond to significant comments submitted during the rulemaking process. Fourth, Treasury’s factual belief about how unrelated parties would share stock-based compensation was contrary to the evidence in the administrative record, which demonstrated that parties transacting at arm’s length would not in fact share amounts attributable to stock-based compensation. Accordingly, the court held that Treasury failed the “reasoned decision-making” requirement imposed by the Administrative Procedure Act (APA) and thereby invalidated the Treasury regulation.
Altera highlights the importance of the administrative record, which provides the basis and justification for adopting regulations, and similarly, when not properly addressed by the relevant government agency, can form the basis for a challenge to regulations. According to the Tax Court’s Altera decision, there is nothing special about tax; the fundamental administrative law principle of notice-and-comment rulemaking applies equally to Treasury regulations. If upheld by the Ninth Circuit, this decision should put more pressure on Treasury and the IRS to ensure that they follow the APA when developing regulations. Altera may also open the door to more challenges to other Treasury regulations, which may have contributed to the IRS’ decision to appeal this decision.
Final Thoughts
Now, more than ever, companies are faced with the BEPS-expanded definition of intangibles and a definition of ownership that is based on functions and economic ownership rather than on legal ownership. This means that legal agreements will be recognized but may be recharacterized for tax purposes if, for example, a related party only funds the activity but does not perform DEMPE functions. In this regard, Treasury officials have said that DEMPE functions do not outweigh ownership.13 Companies should evaluate their intangible arrangements to determine whether they should restructure to align their operations with their intangible ownership. With CbC reporting and the expectation that documents have been created that include value chain analysis, there is reason to worry that tax authorities may misinterpret the data and ignore ownership or significant investments made by an entity with limited or no DEMPE functions.
The time to act is now. Now is the time to take a step back and analyze the available information, both public and internal, about your company. You should use this information to take a fresh look at your structure and to consider efficiencies as well as to prepare for scrutiny by specific or multiple jurisdictions. Companies should ensure that everything holds together and any inconsistencies among jurisdictions are documented and explainable. Moreover, companies need to perform a very detailed risk analysis and ensure that such analysis includes the examples behind the CbC reporting and any value chain analysis that a company prepares. A value chain analysis should be used with caution, rather than like a commodity product. Companies should consider whether their actual transactions are consistent with the way they are described. Companies also should consider APAs to manage controversies.
In addition, it is a great time to review documents such as:
- Recent publicly available and internal marketing material, SEC filings, and earnings calls to make sure you can explain segmented reporting and press releases that could be misinterpreted;
- Each country’s transfer pricing documentation to ensure that each country’s documentation is aligned, tells a consistent story, and can explain differences;
- Global documentation, if any, to ensure that you clearly document any difference in each country’s facts with respect to functions and risks.
- Any omission of differences may appear suspicious;
- Unilateral APAs, because they will be shared with relevant treaty partners based on BEPS Action Item 5; and
- CbC reporting data. Companies should proactively ensure that it aligns with documentation.
These documents should tell a consistent global story regarding your facts. It’s a whole new world in international tax.
Donna McComber is a director of economics at Baker & McKenzie LLC. Jennifer Molnar is a partner at Baker & McKenzie LLP.
Endnotes
1. Medtronic Inc. v. Commissioner, T.C. Memo. 2016-112 (June 9, 2016).
2. Internal Revenue Service, Large Business and International Division, Competent Authority Statistics, www.irs.gov/pub/irs-utl/2015_usca_statistics_report.pdf.
3. See, e.g., Jenny A. Austin, Daniel A. Rosen, and Susan E. Ryba, “Out With Audits, In With Campaigns: LB&I Reorganizes—Again,” 24 Transfer Pricing Report 1371, for a detailed discussion of the LB&I reorganization.
4. See www.irs.gov/businesses/corporations/international-practice-units.
5. See OECD BEPS Actions 8-10 Revised Guidance on Profit Splits; available at www.oecd.org/tax/transfer-pricing/BEPS-discussion-draft-on-the-revised-guidance-on-profit-splits.pdf.
6. Alex M. Parker, “OECD Is Neutral on Profit Split Method: U.S. Official,” Transfer Pricing Report: News Archive (October 3, 2016).
7. Medtronic Inc. v. Commissioner, T.C. Memo. 2016-112 (June 9, 2016).
8. Prop. Treas. Reg. § 1.367(d)-1(b).
9. Guidant LLC et al. v. Commissioner, 146 T.C. No. 5 (2016) (Tax. Ct. Dkt. Nos. 5989-11, 10985-11, 26876-11, 5011-12, and 5502-12).
10. Altera Corp. v. Commissioner, 145 T.C. 91 (2015).
11. 125 T.C. 37(2005), aff’d, 598 F.3d 1191 (9th Cir. 2010).
12. See Compensatory Stock Options Under Section 482, 67 Fed. Reg. 48,997 (July 29, 2002).
13. Dolores W. Gregory, “Dumping on Intangibles Costs Misplaced, U.S. Official Says,” 25 Transfer Pricing Report 404.
