Veritas Software Corp. v. Commissioner (US case 133 TC 14): The U.S. Tax Court has held that the IRS’s $1.675bn adjustment to a cost sharing buy-in payment received by Veritas Software Corp. from an Irish affiliate was “arbitrary, capricious, and unreasonable”.
The tax court also confirmed that Veritas’ use of the comparable uncontrolled transactions method (albeit with some adjustments imposed by the court) was the best way to calculate transfer pricing on the buy-in payment.
Broadly, the IRS seem to have lost because of their experts were not particularly credible and Veritas had good evidence for their transfer pricing method. However – and with wider implications – the Tax Court also rejected a number of the arguments that the IRS have been using as a result of their Coordinated Issues Paper on Cost Sharing Arrangements Buy-in Adjustments (issued 27 September 2007), which casts doubt on adjustments demanded by the IRS on other companies’ cost sharing buy-in payments.
Tags: cost sharing, transfer pricing, USA