Captive Services Provider Campaign - Transfer Pricing

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On April 16th, the IRS identified 3 additional compliance campaigns

One of them is the Captive Services Provider Campaign

Practice Area: Treaty and Transfer Pricing Operations

Lead Executives: Jennifer Best, director, Treaty and Transfer Pricing Operations; and John Hughes, director, Advanced Pricing and Mutual Agreement

The section 482 regulations and the OECD Transfer Pricing Guidelines provide rules for determining arm’s length pricing for transactions between controlled entities, including transactions in which a foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group.

The arm’s length price is determined by taking into consideration data available on companies performing functions, employing assets, and assuming risks that are comparable to those of the captive subsidiary. 

Excessive pricing for these services would inappropriately shift taxable income to these foreign entities and erode the U.S. tax base. The goal of this campaign is to ensure that U.S. multinational companies are paying their captive service providers no more than arm’s length prices. The treatment streams for this campaign are issue-based examinations and soft letters.


The use of the term “captive” appears to refer generally to controlled, intra-group service providers, and the inclusion of transactions among controlled entities in which a “foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group” on its face potentially could apply to a multitude of intra-group service arrangements, including possibly foreign-to-foreign service arrangements. Until clarifying guidance is issued, the scope of the campaign will not be entirely clear.


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