1995 Fiscal Year Final Research Report Summary
A STUDY ON TRANSFER PRICING
| Project/Area Number |
06451111
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| Research Category |
Grant-in-Aid for General Scientific Research (B)
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| Allocation Type | Single-year Grants |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | TOYO UNIVERSITY |
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Principal Investigator |
KOBAYASHI Takeshi TOYO UNIVERSITY,DEPARTMENT OF ECONOMICS,PROFESSOR, 経済学部, 教授 (90039454)
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| Co-Investigator(Kenkyū-buntansha) |
MURAKAMI Mutsumi YAMANASHI GAKUIN JUNIOR COLLEGE,FACULTY OF MANAGEMENT,ASSOCIATE PROFESSOR, 助教授 (20239502)
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| Project Period (FY) |
1994 – 1995
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| Keywords | ARM'S LENGTH PRICE / COMPERATIVE PROFIT METHOD / PROFIT SPLIT METHOD / ADVANCE PRICING AGREEMENT |
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| Research Abstract |
Over the past ten years, the United States have revised or introduced new transfer pricing regulations to strengthen the power of tax authorities to control transfer pricing practices. In 1990, the Internal Revenue Service (IRS) issueed proposed regulations which are directed mainly at foreign multinational companies with U.S.subsdiaries. Under the proposed regulations, a U.S.company of which at least 25% is owned by foreign share holders is required to maintain extensive documentation supporting its arm's length transaction in the United States.
This trend is fortified, two years later. the IRS admitted and recommended the comparative profit method (CPM) to calculate arm's length prices. The feature of this methos is likely to tax not real income but deemed one. The foreign governments including Japan and the Europan coutries were strongly against it.
In the early spring of 1995, we sent questionarries to the largest 1,232 companies listed first class in the Tokyou Security Exchange. We received 137 usable responses, which represented a response rate of 11.2%.
About 90% of the respomdent firms have one or more subsidiaries in the United States. Four companies have more than one hundred subsdiaries in the United States. Thirty-seven cases were examined by the IRS.Almost all of the respondents were opposed to be applied CPM.Many companies wanted to use profit split method.
Another characteristics of our study is on advance pricing agreement (APA) originally invented in Japan introduced in the United States in 1990. The IRS set forth procedure for tax payrs to obtain advance assurance with respect to their transfer pricing transctions or a cost-sharing arrangement. Most companies are interested in this agreement, but they are hesitating to make an agreement with the tax authorities because of the extravagant expenses and much time to be spent. However, they hopefully wait the time to come moderate expenses are needed to arrive at an agreement.
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