Mark Allison Speaks to Law360 on "9th Circ.'s Revival of IRS Rules Stretches 'Arm's Length'"

9th Circ.'s Revival Of IRS Rules Stretches 'Arm's Length'

The Ninth Circuit's split decision to uphold cost-sharing rules challenged by chipmaker Altera Corp. gives the Internal Revenue Service wiggle room in deciding what counts as arm's length among related businesses — and casts doubt on the long-standing approach to transfer pricing.

Last week, a 2-1 majority on a Ninth Circuit panel overturned the U.S. Tax Court's ruling for Altera. In doing so it reinstated a 2003 regulation that required related businesses to include stock-based compensation in their cost-sharing agreements.

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It's troubling that the Treasury Department could simply set aside the arm's-length standard after saying it couldn't find comparable transactions, according to Mark Allison, an attorney who counsels multinational corporations at Caplin & Drysdale Chtd. He said the leading premise of Internal Revenue Code Section 482, which covers transfer pricing regulations, involves first determining what is arm's length.

“Just because you have a hard time figuring out comparability shouldn't be the leverage to then just simply say, ‘We're going to ignore arm's-length requirements altogether,’” he said.

Read more at Law360.