Page 16 - International Taxation IRS Training Guides

Income Shifting Outbound (Cont’d)

a U.S. taxpayer may shift valuable
 For example,

Intangible
Property (IP) to its controlled foreign
subsidiary.

 The U.S.
taxpayer should be compensated for the use or
transfer
of the IP by the controlled foreign subsidiary.

 The U.S.
taxpayer may inappropriately underprice the

royalty, which decreases
U.S. earnings and increases
foreign
earnings.

 Such pricing
disparity could result in a U.S. taxpayer
future U.S. taxable income, and
underreporting its

consequently, its
federal income taxes.

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