Transfer pricing
IRS rules requiring arm's-length pricing for transactions between related parties across borders.
Definition
Transfer pricing under IRC § 482 requires US entities to charge arm's-length prices in transactions with related foreign parties. Includes loans, services, IP licensing. Documentation required for material related-party transactions.
Context
Relevant for Delaware LLCs with related foreign-entity transactions (e.g., LLC pays a foreign-related entity for services).
Example
A Delaware LLC owned by a non-resident pays a foreign company also owned by the same person for management services. The fee must be arm's-length.
Common pitfalls
- IRS Form 5472 requires disclosure of related-party transactions.
- Arms-length documentation is critical defense.
- Penalties for transfer-pricing adjustments can be substantial.