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At trial, petitioner presented evidence showing that Compaq
U.S. paid a 17.7-percent material markup on $96 million of
turnkey purchases from IEC and that the 17.7-percent IEC markup
was typical in the PCA industry. Respondent's expert, Chandler,
also conceded that this markup was consistent with and fell
within the middle of the range of material markups actually
observed in the marketplace. Thus, the Compaq Asia use of the
17.7-percent markup was appropriate and in accord with the
evidence in this case.
Respondent also argues that the PCA's in the controlled and
uncontrolled transactions were not identical or nearly identical
as required by section 1.482-2A(e)(2)(ii), Income Tax Regs. The
overwhelming evidence established that the PCA's within each
category were substantially similar or nearly identical and
differed in only two respects: (i) The cost of the specific
components and materials used on each PCA and (ii) the amount of
time required to process each PCA. As set forth above, in
accordance with the applicable regulations, adjustments can be
and were made to make the transactions comparable. Accordingly,
transactions with unrelated subcontractors warranted application
of the CUP method.
Respondent argues that volume discounts should apply to
Compaq Asia sales in this case. The regulations do not enumerate
volume as a factor that may impact price; rather, the regulations
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