Basis in Interests in Tax-Exempt Trusts, 55543 [C1-2015-19846]
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correspond to the value provided between
the parties, regardless of the form of the
transaction. Accordingly, the arm’s length
compensation for the ROW intangibles is the
same in both scenarios, and the analysis of
the amount to be taken into account under
section 367(d) pursuant to §§ 1.367(d)–1T(c)
and 1.482–4 should include consideration of
the amount that P would have charged for the
realistic alternative determined under
§ 1.482–7(g) (and § 1.482–4, to the extent of
any make-or-sell rights transferred). See
§§ 1.482–1(b)(2)(iii) and 1.482–4(g).
Example 9. Aggregation of interrelated
manufacturing and marketing intangibles
governed by different statutes and
regulations. The facts are the same as in
Example 8 except that P transfers only the
ROW intangibles related to manufacturing to
S1 in an exchange described in section 351
and, upon entering into the CSA, then
transfers the ROW intangibles related to
marketing to S1 in a platform contribution
transaction described in § 1.482–7(c) (rather
than transferring all ROW intangibles only
upon entering into the CSA or only in a prior
exchange described in section 351). The
value of the ROW intangibles that P
transferred in the two transactions is greater
in the aggregate, due to synergies among the
different types of ROW intangibles, than if
valued as two separate transactions. Under
paragraph (f)(2)(i)(B) of this section, the arm’s
length standard requires these synergies to be
taken into account in determining the arm’s
length results for the transactions.
Example 10. Services provided using
intangibles.—(i) P’s worldwide group
produces and markets Product X and
subsequent generations of products, which
result from research and development
performed by P’s R&D Team. Through this
collaboration with respect to P’s proprietary
products, the members of the R&D Team have
individually and as a group acquired
specialized knowledge and expertise subject
to non-disclosure agreements (collectively,
‘‘knowhow’’).
(ii) P arranges for the R&D Team to provide
research and development services to create
a new line of products, building on the
Product X platform, to be owned and
exploited by S1 in the overseas market. P
asserts that the arm’s length charge for the
services is only reimbursement to P of its
associated R&D Team compensation costs.
(iii) Even though P did not transfer the
platform or the R&D Team to S1, P is
providing value associated with the use of
the platform, along with the value associated
with the use of the knowhow, to S1 by way
of the services performed by the R&D Team
for S1 using the platform and the knowhow.
The R&D Team’s use of intangible property,
and any other valuable resources, in P’s
provision of services (regardless of whether
the service effects a transfer of intangible
property or valuable resources and regardless
of whether the property is relatively high or
low value) must be evaluated under the
section 482 regulations, including the
regulations specifically applicable to
controlled services transactions in § 1.482–9,
to ensure that P receives arm’s length
compensation for any value (attributable to
such property or services) provided to S1 in
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a controlled transaction. See §§ 1.482–4 and
1.482–9(m). Under paragraph (f)(2)(i)(A) of
this section, the arm’s length compensation
for the services performed by the R&D Team
for S1 must be consistent with the value
provided to S1, including the value of the
knowhow and any synergies with the
platform. Under paragraphs (f)(2)(i)(B) and
(C) of this section, the best method analysis
may determine that the compensation is most
reliably determined on an aggregate basis
reflecting the interrelated value of the
services and embedded value of the platform
and knowhow.
(iv) In the alternative, the facts are the
same as above, except that P assigns to S1 all
or a pertinent portion of the R&D Team and
the relevant rights in the platform. P takes the
position that, although the transferred
platform rights must be compensated, the
knowhow does not have substantial value
independent of the services of any individual
on the R&D Team and therefore is not an
intangible within the meaning of § 1.482–
4(b). In P’s view, S1 owes no compensation
to P on account of the R&D Team, as S1 will
directly bear the cost of the relevant R&D
Team compensation. However, in assembling
and arranging to assign the relevant R&D
Team, and thereby making available the
value of the knowhow to S1, rather than
other employees without the knowhow, P is
performing services for S1 under imputed
contractual terms based on the parties’ course
of conduct. Therefore, even if P’s position
were correct that the knowhow is not an
intangible under § 1.482–4(b), a position that
the Commissioner may challenge, arm’s
length compensation is required for all of the
value that P provides to S1 through the
interrelated provision of platform rights,
knowhow, and services under paragraphs
(f)(2)(i)(A), (B), and (C) of this section.
Example 11. Allocating arm’s length
compensation determined under an
aggregate analysis—(i) P provides services to
S1, which is incorporated in Country A. In
connection with those services, P licenses
intellectual property to S2, which is
incorporated in Country B. S2 sublicenses
the intellectual property to S1.
(ii) Under paragraph (f)(2)(i)(B) of this
section, if an aggregate analysis of the service
and license transactions provides the most
reliable measure of an arm’s length result,
then an aggregate analysis must be
performed. Under paragraph (f)(2)(i)(D) of
this section, if an allocation of the value that
results from such an aggregate analysis is
necessary, for example, for purposes of
sourcing the services income that P receives
from S1 or determining deductible expenses
incurred by S1, then the value determined
under the aggregate analysis must be
allocated using the method that provides the
most reliable measure of the services income
and deductible expenses.
(ii)(A) [Reserved]. For further
guidance see § 1.482–1(f)(2)(ii)(A).
(B) Example. The following example
illustrates this paragraph (f)(2)(ii):
Example. P and S are controlled taxpayers.
P licenses a proprietary process to S for S’s
use in manufacturing product X. Using its
sales and marketing employees, S sells
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55543
product X to related and unrelated customers
outside the United States. If the license
between P and S has economic substance, the
Commissioner ordinarily will not restructure
the taxpayer’s transaction to treat P as if it
had elected to exploit directly the
manufacturing process. However, because P
could have directly exploited the
manufacturing process and manufactured
product X itself, this realistic alternative may
be taken into account under § 1.482–4(d) in
determining the arm’s length consideration
for the controlled transaction. For examples
of such an analysis, see Examples 7 and 8 in
paragraph (f)(2)(i)(E) of this section and the
Example in § 1.482–4(d)(2).
(iii) through (j)(6) [Reserved]. For
further guidance see § 1.482–1(f)(2)(iii)
through (j)(6).
(7) Certain effective/applicability
dates—(i) Paragraphs (f)(2)(i)(A) through
(E) and (f)(2)(ii)(B) of this section apply
to taxable years ending on or after
September 14, 2015.
(ii) Expiration date. The applicability
of paragraphs (f)(2)(i)(A) through (E) and
(f)(2)(ii)(B) of this section expires on or
before September 14, 2018.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: September 10, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2015–23278 Filed 9–14–15; 11:15 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9729]
RIN 1545–BJ42
Basis in Interests in Tax-Exempt
Trusts
Correction
In document 2015–19846, appearing
on pages 48249 through 48251 in the
issue of Wednesday, August 12, 2015,
make the following correction:
On page 48249, in the first column, on
the eighth line from the bottom, under
the heading ‘‘DATES:’’ ‘‘August 13, 2015’’
should read ‘‘August 12, 2015’’.
[FR Doc. C1–2015–19846 Filed 9–15–15; 8:45 am]
BILLING CODE 1505–01–D
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[Federal Register Volume 80, Number 179 (Wednesday, September 16, 2015)]
[Rules and Regulations]
[Page 55543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: C1-2015-19846]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9729]
RIN 1545-BJ42
Basis in Interests in Tax-Exempt Trusts
Correction
In document 2015-19846, appearing on pages 48249 through 48251 in
the issue of Wednesday, August 12, 2015, make the following correction:
On page 48249, in the first column, on the eighth line from the
bottom, under the heading ``DATES:'' ``August 13, 2015'' should read
``August 12, 2015''.
[FR Doc. C1-2015-19846 Filed 9-15-15; 8:45 am]
BILLING CODE 1505-01-D
