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New 482 services regulations reflect TEI comments.



Several TEI 1. (communications) TEI - Terminal Endpoint Identifier.
2. (text, project) TEI - Text Encoding Initiative.
 recommendations for changes to the transfer pricing Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be  regulations governing services under section 482 were adopted by the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  in recently issued regulations. The long awaited rules, extending more than 200 pages, represent a significant improvement over proposed rules issued by the IRS in 2003, according to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3.
 TEI President Dave Bernard. The new rules, issued as temporary regulations, will permit taxpayers an opportunity to consider how the rules interact with the cost sharing regulations, according to the government.

Originally released in proposed form in September 2003, the new rules represent the first revision of the services regulations since the 1960s. The July 31, 2006, temporary and proposed regulations significantly change the 2003 regulations, which had eliminated the cost safe harbor Safe Harbor

1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.

2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive.
 and replaced it with the simplified cost-based method (SCBM SCBM School Community Based Management
SCBM Southern Comfort Barber Mates (Eindhoven, The Netherlands barbershop chorus) 
) for valuing intercompany transfers of services. TEI filed comments on the proposed regulations in December 2003 and July 2004 and testified at the January 2004 hearing. The written comments are reprinted in the January-February and July-August 2004 issues of The Tax Executive.

In response to extensive criticism by TEI and others about the complexity and burden of the SCBM method, the IRS and Treasury Department abandoned that method in favor of a simpler services cost method (SCM (1) (Software Configuration Management, Source Code Management) See configuration management.

(2) See supply chain management.
). "We commend the government for listening to taxpayers' concerns about the SCBM method," Mr. Bernard stated, "especially for recognizing in the new rules that many back-office services should be charged out only at cost." He continued, "I also commend the members of TEI's International Tax Committee who participated in the Institute's working group on the proposed regulations. The positive changes in the rules underscore The underscore character (_) is often used to make file, field and variable names more readable when blank spaces are not allowed. For example, NOVEL_1A.DOC, FIRST_NAME and Start_Routine.

(character) underscore - _, ASCII 95.
 the benefit of getting involved."

Mr. Bernard also noted the simultaneous release of Announcement 2006-50, a proposed revenue procedure that details specific services--including accounting, public relations public relations, activities and policies used to create public interest in a person, idea, product, institution, or business establishment. By its nature, public relations is devoted to serving particular interests by presenting them to the public in the most , treasury, training, database administration, and legal--that qualify for a cost-only safe harbor for "specified covered services covered services,
n.pl the services for which payment is provided under the terms of the dental benefits contract.

Coxiella burnetii
a species that causes Q fever in man.
." TEI urged the adoption of such a list in follow-up comments filed in July 2004, he noted, adding "we welcome this common-sense approach."

A modified quantitative approach is available under the new regulations for certain low-margin services for which the median comparable arm's-length mark-up is seven percent or less. Under Prop. Reg. [section] 1.482-9(b)(2), these services will qualify for SCM if the taxpayer reasonably concludes in its business judgment that the services do not contribute significantly to key competitive advantages, core capabilities, or fundamental chances of success or failure in one or more trades or businesses of the renderer, the recipient, or both. The preamble A clause at the beginning of a constitution or statute explaining the reasons for its enactment and the objectives it seeks to attain.

Generally a preamble is a declaration by the legislature of the reasons for the passage of the statute, and it aids in the interpretation of
 to the regulations explains that unlike the quantitative judgment called for under SCBM, "this is a business judgment preeminently within the business person's own expertise. Exact precision is not needed and it is expected that the taxpayer's judgment will be accepted in most cases." In addition, the SCM may be used for services provided through a shared service arrangement.

"TEI will study this cost-only approach more carefully," Mr. Bernard stated, "but the reliance on the taxpayer's own business judgment is a positive step." He promised a particularly close look at the documentation requirement for using SCM.

The new regulations also provide guidance on the ownership of intangibles, modify the profit split method, and clarify that financial guarantees provided by related parties are not services transactions. Proposed regulations were also released under section 861 of the Code, narrowing the definition of stewardship expenses.

The temporary regulations are effective for tax years beginning after December 31, 2006, but taxpayers may elect to apply the new rules in their entirety for tax years beginning after September 10, 2003.

Mr. Bernard noted that TEI's International Tax Committee is already reviewing the temporary regulations, adding that the Institute may submit additional comments on the rules. He invited TEI members to participate in preparing comments on the new regulations. "We can always use more help in understanding the real-world consequences of these changes." Interested members should contact advocacy@tei.org.
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Title Annotation:Tax Executives Institute
Publication:Tax Executive
Date:Jul 1, 2006
Words:655
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