Business Judgment Test for Services: Judgment or Process?

Tax Management Transfer Pricing Report
Rocco Femia discusses the Internal Revenue Service issuance of administrative guidance, notably Notice 2007-5, on the 2006 temporary regulations governing the transfer pricing of controlled services transactions. The IRS notified taxpayers that they can continue pricing services at cost under the cost safe harbor in 2007 only if and to the extent such services satisfy the business judgment test. Further, taxpayers will need to document or otherwise evidence their compliance with the business judgment test in 2007 to ensure that transfer pricing penalties will not be imposed.
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