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merely provide that comparable uncontrolled sales "do not include
sales at unrealistic prices, as for example where a member makes
uncontrolled sales in small quantities at a price designed to
justify a nonarm's-length price on a large volume of controlled
sales." Sec. 1.482-2A(e)(2)(ii), Income Tax Regs. See generally
Bausch & Lomb, Inc. v. Commissioner, 92 T.C. at 592.
Petitioner presented substantial evidence showing that the
prices that Compaq U.S. actually paid to unrelated suppliers,
although quoted by volume, were not ultimately established by
volume. Testimony on this point came from the unrelated
subcontractors as well as from Compaq U.S. purchasing personnel.
The industry experts, Ray Prasad, Charles-Henri Mangin, and Tim
Faucett, similarly opined that the higher volume did not lead to
lower prices in this case. The testimony was that volume had no
effect on price because unrelated subcontractors gave Compaq U.S.
their best prices in light of the Compaq U.S. market position and
overall level of potential business. Compaq U.S. was big enough
and bought enough PCA's that it was able to demand and receive
the best prices regardless of volume.
Respondent also challenges petitioner's use of unrelated
subcontractor transactions from 1990 and 1993 in establishing an
arm's-length price under the CUP method. Respondent argues that
using transactions with unrelated subcontractors from 1990 and
1993 was inappropriate and tainted the validity of the CUP.
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