The IRS drafts publications that summarize in plain English U.S. tax rules for a variety of tax topics.  A few of the publications discuss U.S. international tax issues.  However, most of the IRS international publications deal with the U.S. taxation of individuals, and not with the U.S. taxation of businesses.

For example, IRS publications do not cover Subpart F Income, outbound transfers to foreign corporations, transfer pricing, etc.  To learn about these rules, one would often have to go to specialized training, read the underlying law (e.g., statute, regulations, cases, etc.), or read what advisors provide on the Internet.

Recently, the IRS has been publishing International Practice Units (“IPUs”) on its website.  IPUs provide IRS staff with explanations of general international tax concepts, as well as information about specific types of transactions.  These IPUs discuss many U.S. international tax issues that are applicable to businesses. 

To date, the IRS has published over 100 IPUs.  However, the IRS website containing these IPUs does not categorize them by topic.  Therefore, it can be difficult to find IPUs on a particular topic. 

We have created a web page that categorizes the IPUs by topic.  The topics include:

• 367 - Outbound, Inbound, & Foreign-to-Foreign Corporate Transfers
• 482 - Transfer Pricing
• 671-679 - Foreign Grantor Trusts
• 861-865 - Source of Income & Expenses
• 864 - Effectively Connected Income ("ECI")
• 871/881 - Fixed, Determinable, Annual, or Periodical ("FDAP") Income
• 882 & 884 - Branch Taxes & Interest Allocation
• 894 - Tax Treaties
• 897 - U.S. Real Property Interests (USRPIs) (Also known as FIRPTA)
• 901 - Foreign Tax Credits
• 904 - Foreign Tax Credit Limitation
• 911 - Foreign Earned Income Exclusion
• 951-956 - Subpart F Income & Investments in U.S. Property
• 985-988 - Foreign Currency Transactions
• 6038-6048 - Failure to File Information Return Penalties
• 7701(b) - Individual Income Tax Residency
• Exchange of Information & Foreign Based Evidence
• Miscellaneous Foreign

Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.  A reporting corporation is either a U.S. corporation that is 25% foreign owned or a foreign corporation that is engaged in a U.S. trade or business.  The reportable transactions are essentially related party transactions.  Consequently, Form 5472 is an important tool in IRS audits relating to transfer pricing and Code §482.  See IRM §4.61.3.4.1.

Part II of Form 5472 requires that the reporting corporation name its direct 25% foreign shareholders as well as its ultimate indirect 25% foreign shareholders.  Treas. Reg. §1.6038A-2(b)(1)(ii).  Rev. Proc. 91-55 illustrates the direct and indirect 25% shareholder reporting requirements of Form 5472 by providing three examples. 

We have created situational charts of the examples in Rev. Proc. 91-55.  One of the charts is shown below and the other two have been added to andrewmitchel.com, where you can find hundreds of other situational charts.

Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.  The reportable transactions are essentially related party transactions.  Consequently, Form 5472 is an important tool in IRS audits relating to transfer pricing and Code §482.  See IRM §4.61.3.4.1.

Treas. Reg. §1.6038A-1(m) provides 7 examples that apply the Form 5472 reporting requirement rules.  We have created situational charts that illustrate the examples.  Images of the charts are shown below and links to PDFs of the charts are also available:

• Treas. Reg. §1.6038A-1(m) Example 1
• Treas. Reg. §1.6038A-1(m) Example 2
• Treas. Reg. §1.6038A-1(m) Example 3
• Treas. Reg. §1.6038A-1(m) Example 4
• Treas. Reg. §1.6038A-1(m) Example 5
• Treas. Reg. §1.6038A-1(m) Example 6
• Treas. Reg. §1.6038A-1(m) Example 7

Last week the I.R.S. published 46 International Practice Units. The Practice Units provide I.R.S. staff with explanations of general international tax concepts as well as information about specific types of transactions. The 46 topics covered in the Practice Units are shown below. In addition, we have added a link to the Practice Units in our “Resources” section in the right column.

1. Interest Income Derived by CFC or QBU Engaged in Banking Financing or Similar Business
2. Computing Foreign Base Company Income
3. Subpart F Overview
4. Disposition of a Portion of an Integrated Hedge
5. Asset Valuation using the FMV Method for Interest Expense Allocation to Calculate FTC Limitation
6. Overview of Interest Expense Allocation and Apportionment in Calculation of the FTC Limitation
7. French Foreign Tax Credits
8. Exhaustion of Remedies
9. Exhaustion of Remedies and Transfer Pricing
10. Exhaustion of Remedies in Non Transfer Pricing Situations
11. How to Allocate and Apportion Research and Experimental Expenses
12. Interest Expense Limitation Computation under IRC 163j
13. Issuing a Formal Document Request when a US Taxpayer is Unresponsive to an IDR
14. Section 861 Home Office and Stewardship Expenses
15. License of Foreign Owned Intangible Property by US Entity
16. Management Fees
17. Purchase of Tangible Goods from a Foreign Parent CUP Method
18. CPM Simple Distributor Inbound
19. Foreign Shareholder Activities and Duplicative Services
20. Best Method Determination for an Inbound Distributor
21. Services Cost Method Inbound Services
22. Arms Length Standard
23. Outbound Liquidation of US Corp to Foreign Parent IRC Section 367 e 2 Overview
24. Comparability Analysis for Tangible Goods Transactions Inbound
25. Review of Transfer Pricing Documentation by Inbound Taxpayers
26. Pricing of Platform Contribution Transaction in Cost Sharing Arrangements Initial Transaction
27. Cost Sharing Arrangements vs Licensing Alternative
28. License of Intangible Property from US Parent to a Foreign Subsidiary
29. Distinguishing Between Sale License and other Transfers of Intangibles to CFCs by US Transferors
30. Sale of Tangible Goods from a CFC to a USP CUP Method
31. CPM Simple Distributor Outbound
32. Rev Proc 99 32 Outbound Guidance
33. Outbound Transfers of Property to Foreign Corporation - IRC Section 367 Overview
34. Dual Consolidated Losses Overview
35. Comparability Analysis for Tangible Goods Transactions Outbound
36. Determining Tax Residency Status of Lawful Permanent Residents
37. Substantial Presence Test
38. Election under Section 6013g
39. Election under Section 6013h
40. First Year Election under 7701b4
41. IRC 911 Election and Revocation
42. Tax Home for Purposes of IRC Section 911
43. Branch Profits Tax Concepts
44. Qualification for Treaty Benefits under the Publicly Traded Test
45. Creation of a Permanent Establishment through the Activities of Seconded Employees in the United States
46. Overview of FDAP

Below is a chart of Central de Gas de Chihuahua v. Commissioner, 102 T.C. 515 (1994).  The Tax Court held that the Code §482 adjustment made by the IRS was appropriate where one Mexican corporation, Central Gas, allowed a related Mexican corporation the rent-free use of tractors which were used in the U.S.  The Code §482 adjustment created deemed rental payments to Central Gas which were U.S. source income.

The chart can be viewed as a PDF file here: Central de Gas de Chihuahua.

We will shortly add this chart to andrewmitchel.com, where you can find hundreds of similar situational charts.

For some recent commentary on transfer pricing, visit Paul Caron's TaxProf Blog.

Today the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201349003 - Late IC DISC election.  Form 4876-A, Code §992(b)(1)(A).

PLR 201349010, PLR 201349011, PLR 201349012 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") elections.  Form 8621.  Treas. Reg. §1.1295-3(f).

CCA 201349015 - Addresses the determination of creditable foreign taxes of U.S. corporations (or controlled foreign corporations) with foreign disregarded entities or branches.  U.S. transfer pricing principles may be relevant in determining whether non-arm’s length transfer prices result in noncompulsory payments of foreign tax. 

I recently read the book: Transfer Pricing Answer Book 2012, and I highly recommend it for anyone wanting to learn the U.S. transfer pricing rules.

Transfer pricing generally refers to the price charged by a company to a subsidiary or related company for goods, services, or intangible property.  Transfer pricing typically comes up in international transactions, where the related parties are located in different countries.

The Transfer Pricing Answer Book 2012 has seven contributing authors including its editor, David Blair.  Mr. Blair authors or co-authors 12 of the 22 chapters.  Mr. Blair and the co-authors have skillfully explained transfer pricing in a plain-English way, at least as simple as you can get when dealing with a technical topic such as transfer pricing.

The book is in a Q&A format, with reasonably sized fonts, and the pages are not densely packed, which makes the reading easier.  The use of end notes, as opposed to footnotes, also makes the reading easier for someone who is not as interested in the technical details, while at the same time providing authority for individuals that need to dig deeper. 

The book is comprehensive.  It covers the basics of transfer pricing, the practicalities of conducting a transfer pricing analysis, and the various methods available for determining the appropriate transfer price of goods, services, and intangibles.

As indicated above, I recommend the Transfer Pricing Answer Book 2012 for anyone interested in learning about transfer pricing or anyone that needs a transfer pricing resource.

The publisher is the Practicing Law Institute and for those interested, the book can be purchased here.