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LL.M. Program - Syllabus for Transfer Pricing - LLM113

I.          COURSE DESCRIPTION

Traditionally has been taught by Kithsri DeSilva of the New Zealand Revenue, and formerly a transfer pricing expert for developing jurisdictions the Commonwealth Revenue Authority, with assistance by other countries’ Revenue officials, this course covers practical international transfer pricing issues faced by multinational groups and revenue departments.  The course examines transfer pricing regulations from the perspective of the OECD Guidelines and The US Regs pursuant to IRC Section 482.  The main concentration of the course concerns identifying comparables for the determination of arms length pricing.  Other issues covered include using cost-plus and resale minus, developing cost sharing and profit split arrangements, contract manufacturing, transfer pricing compliance and record keeping, internal policy development, Revenue audit techniques, and advance pricing agreements.

1.1.  This course consists of 14 modules which introduces you to the principles of Transfer pricing (TP) as propounded by the OECD and practiced by many of its member states. Transfer pricing is simple conceptually and yet complex in practice. It is neither a science nor an art. Those of us who have had the unfortunate task of establishing or attacking a transfer price have often felt like blind men in a darkroom searching for a black cat that is not there. That may be the reason why very few TP cases reach the courts. Most of them are settled outside.

1.2.  This course has been organised on the basis that the student has had no earlier exposure to the subject. The course is intended to lay the groundwork on which you can build on if you intend working in this area.

1.3. Those of you who are already familiar with transfer pricing may find the introductory module useful for purposes of revision.

1.4.  There is a vast amount of literature and invariably differing opinions on the subject.  An important aspect this course is to acquaint you with the databases, which contain this information.

By the end of this semester, you should have become proficient in researching these databases. I will be guiding you through the material available in them. You will be expected to read the documents identified in the modules. In particular you will be expected to study “the Transfer Pricing Guidelines for Multinational Enterprises and tax administrations published by the OECD” and: “U.S. International Transfer Pricing” Second Edition by Lowell, Burge & Briger. Both these documents are found at RIA checkpoint. You will also have to read “International Transfer Pricing -OECD Guidelines” by Hammer, Lowell, Burge & Levey. found in the westlaw (database ID “wgl-itpoecd”). You will have to read selected articles from the journal “Tax notes International” published by CCH. This too is found on line at RIA Checkpoint.

1.5.  This course introduces you to the TP laws of USA the leader in the field of TP legislation. For your dissertation, you are expected to research the TP legislation of another country that has enacted TP regulations and present a paper on it.

        In 1995, Kithsri DeSilva was first a student of this program and since 1998 has been teaching in program.  He is full time with the New Zealand Revenue Department.

II.         PURPOSE

            An LLM executive level course.  This course will be taught at the executive level and will employ case studies as well as global case analysis.   

• 3 credits
• elective course
• no prerequisites

III.        COURSE PROCEDURE

            This course will involve fourteen weekly modules that are delivered through on-line instruction pursuant to current program specifications.  Each module will contain text material, study guide instruction, and weekly interactive participation.  Text material may contain a combination of code sections from various systems, cases, and commentary materials.  Study guides will contain commentary materials upon the text materials with imbedded exercises and assignments to be completed either independently or within a group of two to five persons.  Assignments may be submitted directly to the Instructor or submitted to the classroom.

             Each module, selected students may be called upon to deliver answers in the Internet based classroom to questions posed by the instructor.  Questions may be posed in case study form or in issue form.  Answers may be short (one page) form or long form (five page analysis).

             During the semester, module based audio and videotape lecture construction will be explored as well as the provision to students through streaming technology.

              During the sixteen-week semester, the students will have two technology skills and control weeks.  The first week of the course, the student will spend the time acquiring and testing the necessary accessing components of the course, including: blackboard skills, database access, proxy server access, material download, and other technical issues.  Also, students will introduce themselves and identify with each other (camaraderie and network building).  During the third week, students will be given another breather week to check the quality of their acquired technology technical skills and offsite database access in order to identify any problem areas that require immediate correcting.

             During the semester, each student will receive at least two detailed feedback sessions from the Instructor through the detailed marking of his/her/group study guide assignments and/or class participation.  Separately, the Instructor is available for office hour private counseling through email, telephone, and perhaps by residential office appointment.

            Other assignments may receive feedback and will receive a grade, recorded in the online grade book that students may assess their performance.

 IV.        ATTENDANCE AND PARTICIPATION

This online course requires attendance which is measured by (1) the modular-weekly interactive participation opportunities in the classroom, (2) mandatory weekly participation through being called upon to address the class for certain modules as well as (3) modular study guide assignments.  Missing mandatory weekly participation assignments is the equivalent of being not prepared in class and will result in a zero for that assignment.   Not turning in study guide assignments will result in a zero for that assignment.

  V.         EVALUATION OF STUDENT PERFORMANCE

            Grades will be determined through a combination of factors, as follows:

final exam - 50%;

weekly study guide assignments – 25%

weekly participation – 25%

VI.        REQUIRED TEXTS

Electronic texts edited and authored by the Instructor, supplemented by reference materials.  Reference materials will include source materials and secondary materials.

VII.       REFERENCE MATERIAL

Research is conducted using the Internet WWW as well as, and most importantly, value added databases which we may supply upon your enrollment.

VIII.      WEEKLY SYLLABUS

I. Introduction. The context of transfer pricing

A. Definition of transfer pricing

B. The size of the problem

C. Recent developments

II. Development of the Transfer Pricing Rules

A. Art. 9 of the OECD Model Tax Convention

B. The 1979 and 1984 OECD Reports on transfer pricing

C. Impact of the OECD Reports

D. Developments in the United States

E. Final U.S. Regulations 1994

F. The new OECD Guidelines

III. Tax Versus Managerial Aspects of the Transfer Pricing Problem

A. Multinational enterprises and intra-group trade

B. Management control versus tax considerations

C. Practice in multinational enterprises

IV. The Notion of Control in Transfer Pricing

A. The notion under Article 9 of the Model Tax Convention and the commentary to it

B. The notion interpreted in selected countries

V. The Arm’s Length Principle

A. The concept and the origins

B. The 1995 OECD Guidelines

C. Problems with the application of the arm’s length principle

D. Solutions for the transfer pricing problem?

VI. Transfer Pricing Methods: Traditional Transaction Methods

A. Introduction and relationship to Article 9

B. Comparable uncontrolled price method

C. Resale price method

D. Cost plus method

VII. Transfer Pricing Methods: Traditional Transaction Methods

A. Profit split method

B. Transactional net margin method

C. Comparable profit method

VIII. VIII. Comparability Analysis

Comparability Analysis as dealt with in the OECD Guidelines and IRS Section 482 Regulations.

A. Reasons for examining comparability

B. Factors determining comparability

1. Characteristics of the property or service 2. Functional analysis 3. Contractual terms 4. Economic circumstances 5. Business strategies

C. Special circumstances

1. Market penetration strategy 2. Different geographic markets 3. Location savings

IX. The Arm’s Length Range

A. The concept of an arm's length range

B. Two arm's length range varieties

C. Determination of the arm's length range

D. Adjustments of taxpayer's results outside the arm's length range

E. Conclusion

X. Transfer Pricing of Intangibles

A. The OECD: Definition of intangible

B. The OECD: Applying the arm's length principle to intangible transactions

C. The OECD: Arm's length pricing where valuation is highly uncertain at the time of the transaction

D. United States: Applying the arm's length principle to intangible transactions

XI. Intra-group Services

A. Introduction

B. Main focus of the OECD Guidelines

1. Determining whether intra-group services have been provided 2. Determining an arm's length charge in general 3. Identifying arrangements for charging for intra-group services 4. Calculating the arm's length consideration

C. Examples of intra-group services

1. Shared service centres

XII. Cost Contribution Arrangements

A. Definitions

B. Applying the arm's length principle to CCAs

C. Determining the participants to a CCA

D. The amount of each participant's contribution

1. The valuation of each participant's contribution 2. The determination of the share of the total benefits to be expected from the CCA by each participant

XIII. Compliance Aspects

A. Documentation

1. Introduction 2. Guidance on documentation rules and procedures 3. Useful information for transfer pricing audits 4. General recommendations on documentation

B. Burden of Proof

C. Penalties

XIV. Transfer Pricing Audits

A. In general

B. Simultaneous tax examinations

C. Remarkable facts in specific countries

XV. Disputes and Dispute Solving

A. Corresponding adjustments and the mutual agreement procedure: Articles 9 and 25 of the OECD Model Tax Convention

1. The mutual agreement procedure 2. Corresponding adjustments : Paragraph 2 of Article 9 3. Concerns with the procedures 4. Recommendations to address concerns a) Time limits

b) Duration of mutual agreement proceedings

c) Taxpayer participation

d) Publication of applicable procedures

e) Problems concerning collection of tax

deficiencies and accrual of interest

5. Secondary adjustments

B. Advance pricing arrangements

1. Definition and concept of advance pricing arrangements 2. Possible approaches for legal and administrative rules governing advance pricing arrangements 3. Advantages of advance pricing arrangements 4. Disadvantages relating to advance pricing arrangements 5. Recommendations a) In general

b) Coverage of an arrangement

c) Unilateral versus bilateral (multilateral) arrangements

d) Equitable access to APAs for all taxpayers

e) Developing working agreements between competent authorities and improved procedures

C. Arbitration

1. In general 2. EC Arbitration Convention

XVI. Practical Considerations when Setting Up a Company’s Transfer Pricing Policy

A. How to go through the compliance process

1. Setting-up of parameters of transfer pricing study a) legal entities identification

b) transaction identification

2. Selecting testing strategy a) transactional method

b) profit based method

c) creation of the testing scenario

3. Collecting necessary documentation a) on controlled legal entities

b) on tested parties

c) on tested transactions

4. Identifying and evaluating comparable transactions and companies

 a) characterize the tested party

b) select comparable companies

c) identify tested party comparables

5. Performing economic analysis a) Transactional analysis

b) Profit based analysis

c) Determining the best method rule

6. Producing required reports

B. Use of software packages

C. Use of CD-Roms when searching for comparables

LLM Online Course Requirements for Certification:

• CWM Chartered Wealth Manager - Take LLM 131, and LLM200
• CTEP Chartered Trust & Estate Planner - Take: LLM111 and LLM 131
• CPM Chartered Portfolio Manager - Take LLM 222
• CRA Chartered Risk Manager - Take LLM106 and 110
• CAM - Chartered Asset Manager - Take LLM 104 and LLM 105
• CMA - Chartered Market Analyst - Take LLM 333 (Must of Masters Degree, JD or CPA)
• RFS - Registered Financial Specialist - LLM 101 and LLM 102