Oral Argument Scheduled in Container

The Fifth Circuit has scheduled the oral argument in Container for Thursday March 3, 2011, in New Orleans.  The identity of the three-judge panel will be announced at a future time.… Read More

The Curious Non-Appeal of Veritas

Veritas Software Corp. v. Commissioner, 133 T.C. No. 14 (2009) was the first cost sharing buy-in case to go to trial.  The question before the court was the value to place on the transfer by Veritas to its Irish subsidiary of the right to use technical and marketing intangibles related to software development.  Veritas argued that the valuation should be based on an adjusted comparable uncontrolled transaction (CUT) analysis (involving licenses of the same or similar property).  The IRS argued that it should be based on an aggregate discounted cash flow (DCF) analysis that valued the hypothetical transfer of … Read More

Conversation with Bob Kirschenbaum Regarding Great Debate

We previously mentioned the IFA “Great Debate,” held on the campus of Stanford University on October 27, 2010, where the debaters squared off on the debatable utility of the Temporary Cost Sharing Regulations Income Method in valuing intangible transfers for transfer pricing purposes.  As forecast, the debate was extremely well-attended (notwithstanding the conflicting start of the first game of the World Series just up the road in San Francisco).   Bob Kirschenbaum and Clark Chandler drew the “pro” (i.e., you should never use the Income Method) while Jim O’Brien and Keith Reams drew the “con.”  After the debate, Bob … Read More

Briefing Completed in Container

The government has filed its reply brief in Container, and the parties will now await an order assigning a date for oral argument.  The parties’ respective arguments were well delineated in the opening briefs, and the reply brief does not shed much additional light on the issue.  The government emphasizes that it has never argued that guarantee fees are interest; instead it argues that they are more analogous to interest than to a payment for services.  And, disputing the taxpayer’s argument, the government reiterates that this analogy is supported by the two most relevant cases, Bank of America and … Read More

Taxpayer’s Brief Filed in Container

The taxpayer has filed its answering brief in Container (attached below), arguing that guarantee fees paid to its Mexican parent were properly analogized to a payment for services and therefore sourced to Mexico.  The taxpayer reasons that the government’s analogy to interest on a loan is misdirected because the guarantor does not advance any funds.  All it does is “stand[ ] by to pay,” which is in the nature of a service, and it is the Mexican parent’s assets – located in Mexico – that give it the ability to serve as a guarantor.  The taxpayer also maintains that the … Read More

Government’s Opening Brief Filed in Container

The government has filed its opening brief (attached below) in the Fifth Circuit in Container, challenging the Tax Court’s decision to treat loan guarantee fees as foreign-source income.  As discussed in our previous post, the Tax Court concluded that such guarantee fees are best analogized to compensation for services. 

The brief is unusually concise, using barely half of the maximum available pages.  As it argued in the Tax Court, the government maintains on appeal that the fees are better analogized to interest, which would result in treating them as U.S.-source income.  It emphasizes three elements of the fees in … Read More

The Best Minds in Transfer Pricing Spar Over the Income Method

Practitioners interested in the more interesting conceptual aspects of transfer pricing should mark October 27th on their calendars.  On that day, the International Fiscal Association is sponsoring a debate on the usefulness of the income method to value intangibles in the transfer pricing context.  Dubbed ”The Great Debate” by IFA, this year’s event will pit the best transfer pricing practitioners in the world (including Miller & Chevalier’s Bob Kirschenbaum and Baker & McKenzie’s Jim O’Brien) against each other.  Neither will know which position they are arguing prior to a coin toss.  The gloves will surely come off and our current understanding is that the only thing … Read More

Xilinx AOD Straightforward but Finds the IRS Still Intent on Redefining the Arm’s Length Standard

On July 28, 2010, the IRS released AOD 2010-33; 2010-33 IRB 1.  The AOD acquiesces in the result but not the reasoning of Xilinx, Inc. v. Comm’r, 598 F.3d 1191, 1196 (9th Cir. 2010) which held that stock option costs are not required to be shared as “costs” for purposes of cost sharing agreements under old Treas. Reg. §1.482-7.  For prior analysis of Xilinx see this.  The AOD in and of itself is relatively unsurprising.  New regulations (some might say “litigating regulations”) have been issued that explicitly address the issue, and those regulations will test the question of … Read More

Fifth Circuit to Consider Sourcing of Guarantee Fees

The parties are poised to brief the appeal of Tax Court’s decision in Container Corp. v. Commissioner, 134 T.C. No. 5 (Feb. 17, 2010), in the Fifth Circuit.  The issue concerns the “sourcing” of income earned by a Mexican corporation from loan guarantee fees paid by its U.S. subsidiary.  Code sections 861-63 identify certain items of income and specify whether they should be treated as U.S-source or foreign-source income.  But there are items of income not specified in those sections, like loan guarantee fees, and it falls to the courts to determine how to source them, using analogies to items that are … Read More

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