IRS Seeks Comments on Bilateral Transfer Pricing Safe Harbor: IRS Seeks Public Comments Regarding the Development of a Model Memorandum of Understanding Between U.S. Tax Treaty Partners Outlining Transfer Pricing Safe Harbors for Routine Distribution Services

Sullivan & Cromwell LLP - March 18, 2013

On March 15, 2013, the Internal Revenue Service announced that it is seeking comments from the public regarding the development of a model memorandum of understanding between Competent Authorities relating to transfer pricing safe harbors for routine distribution functions. The IRS’s announcement follows the June 6, 2012, issuance of a discussion draft on transfer pricing safe harbors by the Organisation For Economic Co-operation and Development (the “OECD”). The OECD discussion draft included draft sample memoranda of understanding on a number of “low-risk” functions, including the distribution function.

The IRS’s request for comments provides a unique opportunity to influence the development of a safe harbor that is applicable to a large number of routine cross-border transactions, and, as the first of its kind, will serve as a template for future bilateral safe harbors relating to other cross-border controlled transactions.

The IRS has requested comments that are highly specific, to the point of proposing text for draft model agreements. Comments should be submitted electronically by May 1, 2013, to [email protected]. Clients that have transfer pricing questions or are interested in submitting comments to the IRS on this matter are encouraged to contact any of the lawyers listed below.