US: Transfer pricing adjustments | KPMG | GLOBAL

US: Transfer pricing adjustments involving consolidated group members

US: Transfer pricing adjustments

The U.S. Tax Court today issued an opinion concluding that the IRS Commissioner—in exercising authority under Code section 482 and adjusting the reported prices for items transferred among taxpayers and their foreign affiliates—is not required to determine the “true separate taxable income” of each controlled taxpayer in a consolidated group contemporaneously with making the transfer pricing adjustments.


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The Tax Court also concluded that the IRS Commissioner may aggregate one or more related transactions—instead of making specific adjustments for each type of transaction.

In reaching these conclusions, the Tax Court denied a taxpayer motion for partial summary judgment.  The case is: Guidant LLC v. Commissioner, 146 T.C. No. 5 (February 29, 2016).  Read the Tax Court’s opinion [PDF 134 KB]


The taxpayers are U.S. corporations that file consolidated federal income tax returns. For the years at issue, the taxpayers engaged in transactions with their foreign affiliates. The transactions included the licensing of intangibles, the purchase and sale of manufactured property, and the provision of services. 

The IRS evaluated whether the income from the transactions with the related parties was allocated at arm’s length, and considered the taxpayers’ transfer pricing studies, financial data and other information provided by the taxpayers, as well as publicly available information. The IRS concluded that the income was not allocated at arm’s length, and adjusted the prices for the related-party transfers as reported by the taxpayers. The IRS then determined the consolidated group’s “true consolidated taxable income” by posting all of the adjustments to the separate taxable income of the group’s parent company (which increased the group’s consolidated taxable income). The IRS did not make any specific adjustment to any subsidiary’s separate taxable income. The IRS also did not determine any portion of the adjustments that related solely to tangibles, to intangibles, or to services. 

The taxpayers moved for partial summary judgment, contending that the adjustments were arbitrary, capricious, and unreasonable as a matter of law because the IRS: (1) did not determine the “true separate taxable income” of each controlled taxpayer; and (2) did not make specific adjustments for each transaction involving an intangible, a purchase and sale of property, or a provision of services.

Today, the Tax Court denied the taxpayer motion for summary judgment, finding that section 482 and the related regulations do not require the IRS Commissioner—when exercising authority under section 482—to determine the true and separate taxable income of each controlled taxpayer in a consolidated group contemporaneously with the transfer pricing adjustment. 

Also, the Tax Court found that section 482 and the regulations allow the IRS Commissioner to aggregate one or more related transactions concerning an intangible, a purchase and sale of tangible property, or a provision of services—instead of making specific adjustments with respect to each type of transaction.

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