The U.S. Internal Revenue Service (IRS) publishes training materials developed by its International Practice Units (IPUs). On March 7, 2016, the IRS released a new publication about the residual profit split method (RPSM). This IPU provides guidance about how the IRS examiners determine if the RPSM is the “best method” under Section 482, and how to apply such method between a U.S. parent and its controlled foreign affiliates when intangible property is transferred.
The RPSM provides four steps that IRS examiners (and taxpayers) should follow:
1) Identify the routine and non-routine contributions made by the parties.
2) Determine if the RPSM is the best method.
3) Allocate income to the parties based on routine contributions using comparable profits achieved by uncontrolled taxpayers engaged in similar activities.
4) Allocate residual profit or loss to the parties based on non-routine contributions.
Read more: https://www.irs.gov/Businesses/Corporations/International-Practice-Units
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