Analysis

9th Circ.’s Shift From Arm’s-Length Rule May Embolden IRS

Law360 (July 24, 2018, 10:32 PM EDT) -- The Ninth Circuit’s revival of an IRS cost-sharing regulation previously invalidated by the U.S. Tax Court throws into disarray multinational companies’ expectations that they can rely on the arm’s-length standard to craft agreements for sharing research and development costs.

Intel’s 2015 victory in U.S. Tax Court against the IRS over the inclusion of stock-based compensation in cost-sharing agreements was reversed by the Ninth Circuit. (AP) The arm’s-length standard, which has been the bedrock of transfer pricing and cost-sharing agreements, dictates that transactions between related businesses sharing the costs of developing intangible property are comparable to what unrelated parties might negotiate....

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