United States Transfer Pricing Policy

The United States regime predates the OECD guidelines in their current form, and it is not a domestic implementation of them. It shares the arm’s-length standard and most of the method vocabulary, and it differs in ways that matter on a real file: the best method rule rather than a hierarchy, an explicit comparability and reliability analysis, and its own treatment of intangibles and services.

The single most consequential US feature for a group coming from another jurisdiction is that documentation is not a filing. There is no annual transfer pricing return to lodge — the file is prepared, dated and held, and it does its work by existing when the examination starts. That makes the US easy to under-comply with quietly.

The US is also the counterparty jurisdiction on a large share of the world’s transfer pricing disputes. For a Canadian, European or Asian group, the practical question is often not whether the US file satisfies the IRS in isolation, but whether the US file and the foreign local file tell one story. Two files written independently are two positions a competent authority has to reconcile.

The statutory position

• The IRS states that section 482 of the Code "authorizes the IRS to adjust the income, deductions, credits, or allowances of commonly controlled taxpayers to prevent evasion of taxes or to clearly reflect their income".
• The regulations under section 482 require that prices charged by one affiliate to another yield results consistent with the results that would have been realised if uncontrolled taxpayers had engaged in the same transaction under the same circumstances — the arm’s-length standard.
• The IRS advance pricing agreement programme provides an alternative dispute resolution mechanism for taxpayers and the IRS to resolve complex international transfer pricing cases; it is administered by the Advance Pricing and Mutual Agreement programme.

Those references were read in the primary source — irs.gov — on 2026-08-19, and they are quoted because they were read. Legislation is amended and guidance is reissued, so confirm the current text before relying on any of it for a filing position.

The US documentation obligation is met by preparing and retaining a file that supports the arm’s-length result, in existence by the time the return is filed. It is not submitted with the return; it is produced on request in an examination, within a period the IRS sets. Preparing it late does not merely weaken it — it forfeits the protection that having it in place provides.

Alongside the file, US taxpayers report related-party transactions on the prescribed information returns for foreign-owned and foreign-controlled entities, and country-by-country reporting applies to groups above the reporting threshold on the BEPS Action 13 model. Those are filings with deadlines, distinct from the documentation itself.

Because the US expects a comparability and reliability analysis rather than a conclusion, the length of a US file is usually driven by the search and the screening rather than by the narrative. A file that reports a benchmark result without showing how the comparable set was built has skipped the part the regulations are about.

The three-tier documentation shape

The documentation shape is close to universal because BEPS Action 13 designed it that way. A master file sets out the group — structure, intangibles, financing, how it makes its money. A local file covers this entity’s own controlled transactions and the reasoning behind each price. A country-by-country report shows administrations, jurisdiction by jurisdiction, where the revenue, the profit, the tax and the people sit. The OECD’s agreed threshold for the country-by-country report is EUR 750 million of consolidated group revenue, or a near equivalent amount in domestic currency as of January 2015 (OECD, Action 13 country-by-country reporting (oecd.org)) — the domestic-currency figure each jurisdiction legislated is its own, and is not stated here because it was not read here.

What we confirm before a United States file is signed off

• Which documentation tiers this group actually owes for this period, tested against IRS’s current requirements rather than last year’s.
• Whether the transaction list is complete. The goods and the service fee are always on it; the guarantee, the secondment, the shareholder loan and the one-off recharge are the ones that are not.
• That the intercompany agreements, the invoices and the management accounts agree with each other and with the policy the file describes.
• That nothing here contradicts what the group has already filed about United States elsewhere. Administrations exchange that data, so the inconsistency arrives before the auditor does.

The US applies a best method rule: no method has priority, and the one selected must be the one that provides the most reliable measure of an arm’s-length result on the facts, judged on comparability and on the quality of the data. That is a different instruction from "most appropriate method", and it has a practical consequence — a US file is expected to compare candidate methods rather than justify one. The US also has its own specified methods for services and for intangibles, which do not map one-to-one onto the OECD five.

The five methods in the OECD framework

Comparable uncontrolled price (CUP)

Takes the price independent parties actually charged each other for the same thing and applies it. Nothing beats it for directness, which is why several administrations state a preference for it, and nothing is harder to find: product, volume, market and contract terms all have to line up before the comparison holds.

Resale price

Derives the transfer price by subtracting an arm’s-length gross margin from the resale price charged to an independent customer. Appropriate where the reseller does not transform the product, and unreliable where the comparison set performs a different mix of marketing, warranty or inventory functions.

Cost plus

Builds the price up from the supplier’s costs plus an arm’s-length mark-up. Used for contract manufacturing, routine assembly and intra-group services. The argument is almost never about the mark-up; it is about which costs belong in the base and whether the cost accounting is consistent year to year.

Transactional net margin (TNMM)

Benchmarks the tested party’s net profit indicator against independent companies doing broadly similar work. It carries more documentation worldwide than the other four combined, precisely because it forgives product differences — and that is also its weakness, because the comparable search then does all the work.

Profit split

Splits the profit the controlled transaction produced between the participants on a basis reflecting their respective contributions. Used where a one-sided analysis cannot work — highly integrated operations, unique contributions on both sides, or risk that is shared rather than borne by one party.

No method is correct in the abstract. The one that holds up in United States is the one whose selection is reasoned on the record — with the alternatives named and rejected for stated reasons — because a method presented without alternatives reads as a default rather than a choice.

The question a United States review turns on is rarely "is this margin in the range". It is "does this describe what the business did". So the work starts with the operating facts and the agreements, not with a comparables database.

What a United States engagement covers

• Mapping and delineating the transactions. We list every related-party flow through the United States entity and tie it back to the ledger first, because an analysis of an incomplete list is an incomplete analysis.
• Functional and risk analysis. What the United States operation actually does, who makes the decisions, and which risks it is genuinely in a position to control — the step that decides whether the rest of the file can stand.
• A reasoned method for each tested transaction, written up with the alternatives that were considered and why they were not used. A method with no alternatives on the page reads as a default.
• Benchmarking with the search shown. Comparable selection, screening decisions and comparability adjustments documented so a reviewer can reproduce them instead of re-running them.
• A file in the form IRS expects, reconciled to the group master file and to whatever has already been said about United States in another jurisdiction’s filing.
• Where the numbers come from. Every threshold, deadline and rate that ends up in the file is confirmed against the Internal Revenue Service (IRS) for the period concerned, and anything we cannot confirm is described as a mechanism instead of guessed at.

Advance certainty and dispute resolution

The IRS advance pricing agreement programme, administered through the Advance Pricing and Mutual Agreement programme, provides an alternative dispute resolution mechanism for resolving complex international transfer pricing cases, and the US treaty network provides the mutual agreement procedure. For a recurring flow of any size, an advance agreement is the mainstream route to certainty rather than an exotic one.

How we work

The fee is agreed in writing before any work starts, and you review the result before anything is filed. Where your United States entity sits relative to our offices makes no difference to how the file gets built. If you want to talk it through first, the helpline answers 24 hours a day and there is no obligation attached to a call — contact us or read our transfer pricing service page for what a full engagement includes.

The direction of travel in United States is the same as everywhere else, and it is worth naming plainly. Authorities exchange country-by-country data, so a group's own reported allocation of profit arrives before any question is asked. Financing and intangibles now generate most adjustments. And a file produced late is treated differently from a file produced on time, whatever it contains.

Where challenges concentrate in United States

• Intangibles are the centre of gravity of US transfer pricing disputes, and the arguments are about what was transferred, when, and what the transferor gave up. Contemporaneous records of the development work and of the decision to move rights are worth more than any later analysis.
• Intercompany services performed by a US parent for foreign subsidiaries — or the reverse — are frequently charged on a basis that has never been tested against the US services rules. That is an easy adjustment for an examiner to propose and an awkward one to answer without a file.
• A US file and a foreign local file that disagree about which entity bears which risk is a self-inflicted problem. It is discovered in a competent authority process, years later, by which time neither file can be changed.

What it costs when the file is not there

The cost of a thin file in United States is rarely just the tax. It is the adjustment, the charge or penalty attached to it, the years it stays open, the management time an audit consumes, and the corresponding position in the counterparty jurisdiction that may not be relieved. Priced against that, the documentation is the cheap part.

By business size

Owner-managed group

A US entity transacting with a foreign affiliate is inside section 482 and inside the related-party information return regime. The file is small; the absence of one is not.

Mid-market group

Once there are services, goods and funding flows, the best method rule means each has to be reasoned separately — and the foreign local file has to agree with the result.

Multinational group

Country-by-country reporting engages and an advance pricing agreement becomes a serious option, particularly where one bilateral flow dominates the exposure.

By industry

Technology and software

Cost sharing, licensing and platform development arrangements put the intangibles rules at the centre, and the development record is the evidence.

Life sciences

Licensed compounds, contract research and milestone structures each raise a separate arm’s-length question, and they are frequently documented as one.

Distribution and inbound US operations

A US distributor for a foreign group is the most common inbound fact pattern, and the comparable set for the US market is where the argument sits.

Read these as starting points rather than categories. The transfer pricing question is set by the group structure and the intercompany agreements, not by what the business sells — so two United States companies of the same size in the same sector routinely need completely different files. The sector says where to look; the agreements say what is there.