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be subject to section 482 allocation because they were provided
to the owners, who are unrelated parties. Although the charges
for these services were billed to the owners, the services were
provided as part of the Hyatt International group’s hotel
management business. However, any allocation must take into
account the costs that have already been paid. Accordingly, the
remaining arm’s-length issues for our consideration involve: The
services HIC performed with respect to worldwide marketing, chain
and design services, and coordination of human resources,
insurance, and employee benefits.
First, however, we consider petitioners’ assertion that the
appropriate measure of arm’s-length consideration for the
services provided by HIC is cost. Section 1.482-2(b)(3), Income
Tax Regs., defines an arm’s-length charge for services rendered
as:
the amount which was charged or would have been charged
for the same or similar services in independent
transactions with or between unrelated parties under
similar circumstances considering all relevant facts.
However, except in the case of services which are an
integral part of the business activity of either the
member rendering the services or the member receiving
the benefit of the services (as described in
subparagraph (7) of this paragraph), the arm’s length
charge shall be deemed equal to the costs or deductions
incurred with respect to such services by the member or
members rendering such services unless the taxpayer
establishes a more appropriate charge under the
standards set forth in the first sentence of this
subparagraph. * * * [Emphasis added.]
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