Transfer Pricing Compliance

In the United States, Internal Revenue Code Section 482 provides the statutory authority for the Internal Revenue Service (“IRS”) to reallocate income among related parties to clearly reflect income and prevent tax avoidance. IRC Section 482 establishes a comprehensive framework to regulate related-party transactions and prevent artificial income shifting. The arm’s length standard, grounded in market comparability and economic substance, governs all intercompany pricing determinations.
Transfer pricing refers to the pricing of goods, services, or intellectual property exchanged between related companies under common control that operate in different tax jurisdictions. These intercompany transactions must be priced in accordance with the arm’s length standard, meaning the terms should be consistent with those that would apply between independent parties under comparable circumstances.

​​For example, when a related entity in the continental United States provides goods or services to an affiliated company operating in Puerto Rico, the price charged—known as the transfer price—must be properly supported and defensible from a tax perspective.

​In Puerto Rico, companies seeking to fully deduct intercompany charges paid to related parties outside the Island must meet specific compliance requirements. In general, this includes:

• Maintaining a contemporaneous transfer pricing study that supports the arm’s length nature of the intercompany transactions, and

• Properly completing and filing Form SC-6175 with the Puerto Rico corporate income tax return.

​​​Failure to meet these requirements may result in the partial or full disallowance of intercompany expense deductions and potential tax exposure.
Call us to discuss your transfer pricing study requirements.