RoyaltyStat Blog

IRS International Practice Units

Posted by Ednaldo Silva

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.

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RoyaltyStat® provides online access to premier databases that can be used to find comparable royalty rates and company financials, and user-friendly built-in tools to determine arm's lengh consideration for related party transactions. Also, we provide benchmarking and expert consulting to corporations that conduct their own in-house transfer pricing compliance documentation. In addition, we provide hazards of litigation risk analysis, de novo (2nd opinion) review, and audit defense on behalf of corporations and tax administrations.

Published on May 7, 2016 2:57:23 PM

Ednaldo Silva (Ph.D.) is founder and managing director of RoyaltyStat. He helped draft the US transfer pricing regulations and developed the comparable profits method called TNNM by the OECD. He can be contacted at:

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Topics: IRS Releases New Practice Unit