May 21, 2019
Control Number: LB&I-04-0519-005
MEMORANDUM FOR ALL LARGE BUSINESS AND INTERNATIONAL DIVISION EMPLOYEES
FROM: Douglas W. O’Donnell /s/ Douglas W. O’Donnell Commissioner, Large Business and International
SUBJECT: Withdrawal of Directive LB&I-04-0118-004, Instructions for Examiners on Transfer Pricing Issue
Selection-Reasonably Anticipated Benefits in Cost Sharing Arrangements, dated January 12, 2018
Purpose: The purpose of this directive is to formally withdraw Directive LB&I-04-0118-004 (RAB Share Directive), dated January 12, 2018, which provided instructions for examiners on transfer pricing issue selection related to Reasonably Anticipated Benefits (RABs) in Cost Sharing Arrangements (CSAs).
Background: Directive LB&I-04-0118-004 directed examiners to stop developing adjustments to CSAs based solely on changing a taxpayer’s multiple RAB shares to a single RAB share when subsequent platform contribution transactions (PCTs) are added to an existing CSA until a Service-wide position was finalized. The RAB Share Directive was issued to support the efficient use of transfer pricing examination resources. Restricting the use of examination resources allowed Treaty and Transfer Pricing Operations (TTPO) to direct resources to other transfer pricing examination issues until Chief Counsel completed their technical analysis of interpretation of the regulations related to the specific RAB share question.
Withdrawal of Directive: On July 26, 2018, the Office of the Associate Chief Counsel (International) issued an advice memorandum (AM 2018-003) in response to TTPO’s request. The memorandum concludes that it may be appropriate to determine and apply different RAB shares with respect to separate cost pools under a single CSA. The memorandum further concludes it may be appropriate to determine and apply a RAB share solely for the purpose of calculating platform contribution transaction (PCT) payments with respect to a particular subsequent PCT that was different from the RAB share used by the taxpayer to calculate cost share transaction payments under the CSA immediately before the subsequent PCT was entered into. The memorandum finalizes the Servicewide position.
With the issuance of this guidance, examination of these CSA issues can now continue with the application of the most reliable method depending on the facts and circumstances of each case to determine the appropriateness of using single or multiple RAB shares with respect to a single CSA. These issues are necessarily fact intensive and may be complex. As always, transfer pricing issue teams should exercise care and rigor in developing the facts to support their analyses and conclusions. Where appropriate, a team should consider consulting the practice network and/or Counsel for support in developing the most reliable analysis of this issue.
Therefore, consistent with the explanation provided above, I am formally withdrawing Directive LB&I-04-0118-004.
Effective Date: May 21, 2019
Contact: For further information regarding this Directive, please contact the Director of Treaty and Transfer Pricing Operations.
This directive is not an official pronouncement of law and cannot be used, cited, or relied upon as such. In addition, nothing in this directive should be construed as affecting the operation of any provision of the Code, regulations, or guidance thereunder.
cc: Division Counsel, LB&I