-30-
regulations were ambiguous, our conclusion would not change
because the legislative and regulatory history relating to
section 482 supports our holding that the arm’s-length standard
is applicable in determining the appropriate allocation of costs
pursuant to section 1.482-7, Income Tax Regs.
In 1986, Congress amended section 482 by adding “In the case
of any transfer * * * of intangible property * * * the income
with respect to such transfer * * * shall be commensurate with
the income attributable to the intangible.” This change
reflected a concern that the statute had failed to effectively
prevent transfer pricing abuses in controlled transactions (e.g.,
companies transferring intangibles to related foreign companies
in exchange for a “relatively low royalty [rate]” based on
“industry norms for transfers of less profitable intangibles.”).
H. Rept. 99-426, at 424 (1985), 1986-3 C.B. (Vol. 2) 424; accord
Staff of Joint Comm. on Taxation, General Explanation of the Tax
Reform Act of 1986, at 1014-1015 (J. Comm. Print 1987); see H.
Rept. 99-426, supra at 424-425, 1986-3 C.B. (Vol. 2) 424-425.
The committee stated:
In making this change, Congress intended to make it
clear that industry norms or other unrelated party
transactions do not provide a safe-harbor payment for
related party intangibles transfers.
H. Rept. 99-426, at 414 (1985), 1986-23 C.B. (Vol. 2) 424. The
committee concluded: “it is appropriate to require that the
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