In the USA, transfer pricing is regulated primarily under Section 482 of the Internal Revenue Code (the “Code”). Section 482 allows the Internal Revenue Service (IRS) to allocate income, deductions, credits and allowances among related business entities for all taxpayers. The statute itself is brief; detailed rules to govern transfer pricing are provided in the Treasury Regulations promulgated by the Treasury Department. These regulations set forth the arm’s length standard and provide guidance on how to determine arm’s length prices for intercompany transactions. Additionally, the IRS provides other guidance such as revenue rulings, revenue procedures, and agency directives. Finally, there is extensive case law governing transfer pricing.

The basic statutory underpinning of the current regime was instituted in the Revenue Act of 1928; the first sentence of Section 482 of the Code is largely unchanged from Section 45 of the 1928 legislation. Additional statutory language, dealing primarily with intangible property, was added in 1986 and 2017.

In the early 1960s, the IRS began to recognise the need for more structured transfer pricing rules. This led to the first significant developments in transfer pricing. In 1968, the Treasury Department promulgated detailed regulations that included methods (comparable uncontrolled price, resale price, and cost-plus) for evaluating transactions.

The Tax Reform Act of 1986 revised Section 482 of the Code by providing more formal requirements for transactions involving intangible property, instituting the “commensurate with income” standard. This was followed by a 1988 White Paper that initiated a review and overhaul of the transfer pricing regulations. The overhaul was completed with final regulations in 1994.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which made additional changes to the Tax Reform Act of 1986 (addressing aggregation of intangible property with other property or services). The TCJA also introduced new tax rules that impact transfer pricing, such as the Global Intangible Low-Taxed Income and Foreign Derived Intangible Income provisions.

Transfer pricing rules apply whenever there is a controlled transaction. Section 482 of the Code defines a controlled transaction as “any transaction or transfer between two or more members of the same group or controlled taxpayers”. These rules are primarily concerned with ensuring that intercompany transactions (ie, transactions between related parties) are at arm’s length – that is, on terms that would have been agreed to by unrelated parties under similar circumstances. The transfer pricing rules do not require technical ownership for entities to be “controlled” but allow the IRS to apply a flexible test to determine the existence of a controlled transaction.

Several transfer pricing methods are specified in the US transfer pricing regulations. The options available are dependent on the type of service or property involved in the transaction, as follows.

• Transfer of tangible property – the specified transfer pricing methods are:
1. comparable uncontrolled price method;
2. resale price method;
3. cost plus method;
4. comparable profit split method; and
5. residual profit split method.
• Transfer of intangible property ‒ as detailed further in 4.1 Notable Rules, the specified transfer pricing methods are:
1. comparable uncontrolled transaction (CUT) method;
2. comparable profits method (CPM); and
3. profit split method.
• Controlled services transactions ‒ the specified transfer pricing methods are:
1. comparable uncontrolled services price method;
2. gross services margin method;
3. services cost method (SCM);
4. CPM; and
5. profit split method.
• Mixed property transactions – the specified transfer pricing methods are:
1. comparable profit split method; and
2. residual profit split method.
• Cost-sharing platform contributions transactions ‒ the specified transfer pricing methods are:
1. CUT method;
2. income method;
3. residual profit split method;
4. acquisition price method; and
5. market capitalisation method.

Taxpayers are allowed to use unspecified methods if they are justifiable and appropriate.

There is no hierarchy of methods established in US transfer pricing regulations. Instead, the “best method” is to be used. However, the method applied may differ depending on the type of transaction or the facts at issue (see 3.1 Transfer Pricing Methods).

The USA does not have set ranges or statistical measures that are used in transfer pricing regulations. However, statistical measures are used in the arm’s length transactions. These statistical measures are generally used to help assess the reliability of CUTs, calculate profit margins, and analyse financial data in the context of the transfer pricing methods.

The IRS requires comparability adjustments to ensure transactions comply with the arm’s length standard under Section 482 of the Code. The Treasury Regulations require that these adjustments account for differences between related-party transactions and the comparables being used. If the differences are material and affect the pricing of the transaction, adjustments are necessary to improve comparability in the intercompany transaction.

The USA regulates transfer pricing of intangibles under Treasury Regulation Section 1.482-4. As mentioned in 3.1 Transfer Pricing Methods, the following methods are used for transfer pricing of intangibles:

• CUT method;
• CPM;
• profit split method; and
• unspecified methods.

Section 482 of the Code also provides that income from a transfer or licence must be commensurate with the income attributable to the intangible property.

The USA applies the commensurate with income rules to all intangibles, including hard-to-value intangibles, because these items may be difficult to accurately value. In cases where an intangible is transferred at a price that is not consistent with the arm’s length standard, the IRS may make transfer pricing adjustments. These adjustments can involve increasing or decreasing the reported taxable income of the parties involved in the transaction.

Cost sharing arrangements (CSAs) are governed by Treasury Regulation Section 1.482-7. This regulation provides detailed rules that define CSAs, set the conditions for their application, and specify how costs and benefits should be shared between parties. For a CSA to exist, each controlled participant must:

• engage in the cost sharing transaction;
• engage in platform contributions transactions; and
• receive a non-overlapping interest in the cost-shared intangibles (without an obligation to compensate another participant for the interest).

That is, in a CSA, the participants divide up the interests in the cost-shared intangible (typically by territory, but potentially by field of use or on another basis). This division is not subject to the arm’s length concept, with interests divided however the participants choose – so long as they are exhaustive and mutually exclusive ‒ and the division generally cannot be challenged by the IRS. However, the participants must share costs in proportion to their reasonably anticipated benefits (“RAB shares”). Further, the participants must make payments to each other for any platform contribution transactions (PCTs). A PCT is the contribution of any intangible that will be used to help develop the cost-shared intangible.

The sharing of development costs and payments for PCTs must generally adhere to the arm’s length principle (ie, the terms of the arrangement reflect those that independent parties would have agreed to under similar circumstances). The regulations, however, provide some specific rules on what is considered arm’s length, even where independent parties would not have reached the same agreement. Most notable among these is the requirement to share stock-based compensation costs. The US tax rules allow for adjustments if it is found that the CSA does not reflect these modified arm’s length requirements.

Taxpayers in the USA are allowed to make upward transfer pricing adjustments after filing their tax returns only under very limited conditions. As a general rule, taxpayers may not make transfer pricing adjustments after filing tax returns. There are exceptions when the IRS asserts adjustments, particularly that the taxpayer may assert a “set-off” adjustment relating to a different controlled transaction between the same controlled entities. Further, once the IRS asserts an adjustment to a transaction, the courts may determine an arm’s length allocation even if that would result in a taxpayer-favourable adjustment.

The US transfer pricing regulations provide rules for both correlative adjustments (adjusting the results for other parties to the transaction adjusted by the IRS to match that adjustment) and conforming adjustments (adjusting accounts to address the portion of a payment that was not at arm’s length).

There are several methods available to the USA to further co-operation in the sharing of taxpayer information across jurisdictions. The USA has signed bilateral tax treaties with numerous countries, creating a vast treaty network. These treaties allow for the exchange of taxpayer information (eg, information related to income, assets, and financial transactions) between the USA and agreeing countries.

Further, tax information exchange agreements (TIEAs) allow the USA to request information from and send information to other countries on individuals or entities suspected of evading taxes.

Additionally, the USA can also operate through multilateral treaties such as the Convention on Mutual Administrative Assistance in Tax Matters and the Hague Evidence Convention.

In certain circumstances, the USA will co-operate with other tax authorities to conduct a joint audit. Although there is no widespread framework for joint audits in the USA, the IRS will participate in joint audits that involve transfer pricing, multinational enterprises (MNEs) and other cross-border tax issues under the established rules for those issues. The USA co-operates in joint tax audits, particularly through frameworks such as competent authority procedures, advance pricing agreements (APAs), and multilateral agreements such as the OECD’s base erosion and profit shifting (BEPS) framework.

The USA created the APA programme. The programme is well established for unilateral (a single taxpayer and the IRS), bilateral (the taxpayer, the taxpayer’s affiliate, the IRS, and a foreign tax authority), or multilateral (the taxpayer, the taxpayer’s affiliate(s), the IRS, and multiple foreign tax authorities) agreements. An APA identifies the entities and transactions that are covered and can be limited to select portions of a taxpayer’s operations. The APA process is set out in Revenue Procedure 2015-41.

The APA programme is administered by the Advance Pricing and Mutual Agreement Program (APMA) group. The APMA is overseen by the Director of Treaty and Transfer Pricing Operations, who reports to the Deputy Commissioner of the Large Business and International (LB&I) Division.

The APA programme and mutual agreement procedures (MAPs) are both administered by the APMA and the same IRS personnel staff both programmes to resolve transfer pricing matters. The APMA is comprised of team leaders, economists, managers, and assistant directors.

APAs are available to US taxpayers for “coverable issues”. Coverable issues include issues arising under Section 482 of the Code and other issues impacted by transfer pricing principles. Examples of other issues include:

• issues related to Section 637(d) of the Code (rules for certain repatriations of intangible property);
• competent authority issues arising under the business profits and associated enterprises articles of US tax treaties;
• the determination of the income effectively connected with the conduct of a trade or business within the USA; and
• ancillary issues such as interest and penalties to the extent the APMA has authority under the Code or a US tax treaty.

The APMA’s acceptance of a taxpayer’s request for an APA is discretionary. In April 2023, the IRS issued additional internal guidance instructing APMA personnel on how to evaluate whether to accept an APA or renewal request. The guidance provides for a new optional pre-submission review process designed to identify roadblocks to successfully concluding an APA and encourages taxpayers to obtain preliminary advice from the IRS as to whether an APA is an appropriate resolution to a taxpayer’s transfer pricing issues.

APAs are generally intended to apply primarily to prospective years but can also cover rollback years (see 7.8 Retroactive Effect for APAs). The APMA normally expects an APA request to cover at least five prospective years and, for a unilateral APA, the APMA must receive a complete APA application by the date the US return is timely filed for the applicable prospective year.

To better co-ordinate the timing of discussions on bilateral and multilateral APAs, a taxpayer must file a bilateral or multilateral APA request no later than 60 days after a corresponding bilateral or multilateral request is filed with a foreign competent authority.

APA user fees must be paid through the Pay.gov website. For APA requests received after 1 February 2025, the fees are as follows:

• original APAs ‒ USD121,600;
• renewal APAs ‒ USD65,900;
• small case APAs ‒ USD57,500 (applicable where the controlled group has sales revenue of less than USD500 million in each of its most recent three back years, the value of the proposed covered issue(s) is not expected to exceed USD50 million in any given covered year, the aggregate value of any transferred intangible rights is not excepted to exceed USD10 million in any given covered year, and the covered issue(s) do not involve intangible property arising from or related to an intangible development arrangement); and
• amendments to an APA ‒ USD24,600.

There is no upper limit on the number of years an APA can cover. The APMA generally requires that an APA application cover at least five prospective years. The APMA aims to have at least three prospective years remaining in the APA term upon the execution of the APA. In its most recent Annual APMA Statutory Report, dated 27 March 2025, the term length of APAs executed in 2024 ranged from one year to 15 years and averaged six years.

As mentioned in 7.5 APA Application Deadlines, an APA can cover prospective years as well as prior (rollback) years. Typically, a taxpayer requests that an APA cover rollback years, but the APMA may consider a rollback at its discretion even in the absence of a taxpayer’s request.

The penalties in transfer pricing cases can be onerous and are either 20% or 40% of the amount of the tax underpayment, depending on the degree of non-compliance. In Section 482 cases, penalties most often result from valuation misstatements, but accuracy-related penalties for understatement of income tax, disregard of rules or regulations, or transactions lacking economic substance can also apply. Penalties do not stack and, as such, the maximum accuracy-related penalty is 40% ‒ except for in instances of fraud, where the penalty can be 75%.

Penalties potentially applicable to transfer pricing cases are provided for in Section 6662 and include the following.

• Net adjustment penalty ‒ a 20% penalty applies where there is a “substantial valuation misstatement”, which occurs when the net Section 482 adjustment exceeds the lesser of USD5 million or 10% of gross receipts. The penalty is increased to 40% if there is a “gross valuation misstatement”, which occurs when the net Section 482 adjustment exceeds the lesser of USD20 million or 20% of gross receipts.
• Transactional penalty ‒ a 20% penalty applies where there is a substantial valuation misstatement in a transfer price of 200% or more or 50% or less of the arm’s length amount. The penalty is increased to 40% if the transfer price is 400% or more or 25% or less of the arm’s length amount.
• Substantial understatement penalty ‒ a 20% penalty applies where the understatement of tax exceeds the lesser of 10% of the tax required to be shown or USD5 million (USD10 million for corporations).
• Negligence penalty ‒ a 20% penalty applies if the IRS determines a taxpayer acted carelessly, recklessly, or with intentional disregard of the law.
• Non-economic substance penalty ‒ a 20% penalty applies where a transaction lacking economic substance is disclosed. The penalty increases to 40% if the transaction lacking economic substance is not disclosed.

Mitigating Risk of Transfer Pricing Penalties

The net adjustment penalty is most seen in practice. Although penalties can be onerous, taxpayers can mitigate exposure or defend against transfer pricing penalties. Where a taxpayer discovers errors in its tax return before being contacted by the IRS, it can file an amended return. If the amended return corrects the issues giving rise to the tax underpayment and pays all associated taxes, the amended return mitigates much of the penalty exposure. However, in the context of transfer pricing penalties, it is often difficult to anticipate IRS adjustments on audit.

Defending against penalties on audit focuses on pre-emptively maintaining quality documentation. Section 6664(c)(1) of the Code provides that an accuracy-related penalty will not be imposed on any portion of an underpayment if the taxpayer shows there was reasonable cause for that portion and the taxpayer acted in good faith with regard to that portion. The extent of a taxpayer’s effort to assess its tax liability properly is generally the most important factor. The IRS also considers the following factors:

• taxpayer’s background;
• reliability and availability of data and reasonableness of data analysis;
• correct application of the chosen Section 482 method;
• whether the taxpayer obtained a contemporaneous, quality transfer pricing study; and
• size of the adjustment in relation to the overall transaction.

Documentation should explain the taxpayer’s business and its intercompany transactions, provide an analysis of methods and explain why the chosen method was selected, and provide an economic analysis.

The Code provides specific documentation requirements to avoid the net adjustment penalty. Section 6662(e)(3)(B) of the Code requires that a taxpayer’s use of the chosen method was reasonable, the taxpayer has documentation on the application of its chosen method, and the taxpayer provides the documentation to the IRS within 30 days of a request. Treasury Regulation Section 1.6662-6(d) further describes the documentation needed to meet the Section 6662(e)(3)(B) exception to the net adjustment penalty. If a taxpayer meets the requirements of Treasury Regulation Section 1.6662-6(d), it is deemed to have established reasonable cause with regard to a transactional penalty or a substantial understatement penalty as well.

The USA has some limited country-by-country reporting (CbCR) requirements. It does not require taxpayers to prepare master or local files. CbCR requirements apply to US persons that are the ultimate parent of a US MNE and have revenue of USD850 million or more for the reporting period. Under Section 6038A of the Code, impacted taxpayers must file a Form 8975 annually by the extended due date of income tax returns (October 15th for calendar year corporate groups).

The USA views its Section 482 transfer pricing rules as consistent with the OECD Transfer Pricing Guidelines. The most recent 2022 United States Transfer Pricing Country Profile provided by the USA to the OECD states that “US transfer pricing regulations are consistent with the [Guidelines]”. Although they are broadly in alignment, there are differences between the OECD Transfer Pricing Guidelines and the Section 482 rules. For instance, the USA does not require taxpayers to file master or local file CbCR.

Section 482 transfer pricing rules provide a variety of specified methods for determining whether an intercompany transaction was conducted at arm’s length. In general, the rules do not depart from the arm’s length principle, but there are certain exceptions where the rules provide some flexibility to minimally deviate from a strict arm’s length standard. These exceptions include certain safe harbours, which are discussed in 11. Safe Harbours or Other Unique Rules. Another example is in the context of CSAs, which are provided for in Treasury Regulation Section 1.482-7. The regulation provides specific guidelines and, so long as the entities’ CSA is within the confines of the regulation guidelines, the arrangement will be considered arm’s length.

As mentioned in 9.1 Alignment and Differences, the USA views its Section 482 transfer pricing rules as consistent with the OECD Transfer Pricing Guidelines. Tax practitioners are not universally in agreement. Differences in domestic and foreign transfer pricing landscapes are generally resolved in proceedings with the APMA.

At the time of publication (April 2025), the USA’s perspective on the OECD’s BEPS 2.0 initiative, including Pillar One and Pillar Two, is in flux. Prior to the administration change in January 2025, BEPS 2.0 was supported by President Biden’s administration, but not Congress. Currently, neither President Trump’s administration nor Congress support BEPS 2.0. Shortly after taking office, the Trump administration issued a statement that the OECD global tax deal has “no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal”. The long-term impact of BEPS 2.0 in the USA remains to be seen.

One entity in an intercompany transaction can bear the risk of another related entity’s operations by guaranteeing the other entity a return, so long as the entity bearing the risk is compensated appropriately for that risk. Provided there is economic substance in the underlying transactions, the IRS will respect contractual risk allocation.

The United Nations Practical Manual on Transfer Pricing does not significantly impact US transfer pricing practice or enforcement. Transfer pricing laws in the USA are derived from the Code ‒ specifically, Section 482 – and the regulations promulgated thereunder, IRS administrative guidance (eg, revenue rulings and revenue procedures), and case law.

US transfer pricing rules contain a few safe harbours applicable in certain specific situations. For instance, Treasury Regulation Section 1.482-2(a)(2)(iii) contains a “safe haven interest rate” for certain loans and advances between members of a group of controlled entities, so long as the rate is not less than 100% of the applicable federal rate and not more than 130% of the applicable federal rate.

There is also a safe harbour for certain low value-adding intra-group services in Treasury Regulation Section 1.482-9(b). This safe harbour provides for the SCM (see 3.1 Transfer Pricing Methods) – under which, low value-adding intra-group service scan be charged out at cost in certain circumstances. The method evaluates whether the amount charged is arm’s length by reference to the total services costs with no mark-up. So long as the taxpayer applies the SCM in accordance with the regulation, the method will be considered the best method and any IRS allocations will be limited in the adjustments it can make. To qualify for the SCM, the service must:

• be a covered service (generally services that do not involve a significant median comparable mark-up of more than 7%);
• not be on the regulation’s list of excluded activities;
• meet the business judgment rule, requiring the taxpayer to reasonably conclude that the service does not contribute significantly to certain competitive advantages, core capabilities, or fundamental risks; and
• be supported by the taxpayer’s maintenance of adequate books and records.

Treasury Regulation Section 1.482-1(d)(3)(iv)(E) contains the rule governing savings that arise from operating in the USA (as well as any other location). The rule does not dictate how savings should be treated but, rather, takes location-specific costs into consideration in determining the degree of comparability between controlled and uncontrolled transactions when evaluating the economic conditions that could affect pricing or profit.

The USA does not have any unique rules disallowing marketing expenses by a local entity that is a licensee claiming local distribution intangibles.

The USA has specific rules governing intercompany loans. Treasury Regulation Section 1.482-2 provides methods for determining an arm’s length interest rate on bona fide indebtedness between related parties. The regulation provides safe harbour provisions under certain circumstances.

There are many other Code sections that could impact the tax treatment of intercompany financial transactions. They are too numerous to cover here, but include Section 163(j) of the Code (limitation on business interest) and Section 267A of the Code (certain related party amounts paid or accrued in hybrid transactions or with hybrid entities).

The co-ordination of tax and customs obligations has long frustrated taxpayers and authorities. Transfer pricing and customs laws and regulations operate in mostly separate frameworks and are not always in alignment. Under Section 1059A of the Code and its regulations, federal income tax law requires that ‒ where related parties import property directly or indirectly into the USA ‒ the transfer price used for income tax purposes generally must not exceed the declared value for customs purposes, subject to certain exceptions discussed here. Specifically, the customs value generally caps the amount a US taxpayer may claim as a basis or inventory cost of the imported property. That is, customs value generally provides a ceiling on transfer pricing valuation for federal income tax purposes. Although some compensating adjustments are allowed, Section 1059A of the Code and Treasury Regulation Section 1.1059A-1 prohibit taxpayers from making upward adjustments to the transfer price after the customs entry has liquidated. Notably, Section 1059A of the Code does not limit the IRS’s authority under Section 482 of the Code and the IRS can determine that the transfer price is lower than the customs valuation if the customs valuation exceeds the arm’s length price.

Section 1059A of the Code does not apply to any portion of the value of an imported good that is not subject to customs duties on an ad valorem basis or has a duty rate of zero. Factors not included in customs valuations include:

• freight charges;
• insurance charges;
• amounts incurred for the construction, erection, assembly, or technical assistance provided with regard to the property after importation into the USA; and
• any other amounts not taken into account in determining the customs value, not properly includible in customs value, and which are appropriately included in the cost basis or inventory cost for income tax purposes.

All such amounts must independently satisfy the arm’s length standard if they are paid to related parties. These exceptions allow the Section 482 transfer pricing value to exceed the customs value in certain circumstances.

The transfer pricing controversy process includes the availability both of administrative appeal proceedings and judicial review. Transfer pricing controversies are not treated differently from other tax controversies.

Within the IRS there is an Independent Office of Appeals, which is empowered to settle tax controversy cases at the administrative level, including based on the hazards of litigation. In addition to the standard appeals process, other ADR options within the IRS may be available.

If the taxpayer is unable to resolve the controversy at the administrative level, there are three options for judicial review:

• the US Tax Court, where the taxpayer can challenge a disputed tax before paying;
• the US Court of Federal Claims, where the taxpayer must pay the tax before seeking a refund; and
• the US District Court for the district where the taxpayer resides, which also requires payment first.

Either the taxpayer or the government may appeal a trial court decision as of right to a federal circuit court panel. Further appeals to an en banc circuit court or the US Supreme Court are discretionary for the courts.

There is significant judicial precedent on transfer pricing in the USA, with ongoing development of case law. Challenges to transfer pricing regulations will likely increase given a recent US Supreme Court decision weakening judicial deference to regulations generally.

Some recent court rulings with a significant impact on US transfer pricing rules include:

• 3M Co v Commissioner, in which the US Tax Court upheld transfer pricing adjustments based on “blocked income” subject to foreign payment restrictions (an appeal is pending);
• Altera Corp v Commissioner, in which the Ninth Circuit upheld regulations requiring stock-based compensation in CSAs;
• Eaton Corp v Commissioner, in which the Sixth Circuit limited the IRS’s ability to cancel APAs;
• Medtronic, Inc v Commissioner, in which the US Tax Court used an unspecified method somewhat similar to a CUT (an appeal is pending); and
• Coca-Cola Co v Commissioner, in which the US Tax Court applied the CPM and rejected taxpayer arguments based on reliance on long-standing and previously approved methods (an appeal is pending).

The USA does not restrict outbound payments relating to uncontrolled transactions.

The USA does not restrict outbound payments relating to controlled transactions.

There are detailed regulations addressing when other countries’ legal restrictions will be respected in determining transfer pricing allocations. The validity of these regulations are currently being challenged in court.

Statistical information on APAs is published annually. The information includes the number of executed and pending APAs, as well as number of APAs by jurisdiction, industry, controlled party relationship, type of transaction, method used, and similar metrics.

Secret comparables are not used.