Page 78 - Strategic Tax Planning for Global Commerce & Investment

Tax Benefits for U.S. Exporters

1. The must be consistency in accounting. Dif-
ferences in accounting practices for invento-
ry or costs, for example, affect materially the

profits of the operation and must be taken
into account in doing the appropriate ad-
justments
2. The reliability of the allocation of costs, in-
come and assets within the activity of the
relevant business line could affect the level
of the indicators of profit of the relevant

business segments.

Example:

Interquartile Range with No Adjustments

This example illustrates a transfer of tangible property with no
adjustments. LC Corp. is a foreign publicly traded company
having PT Corp. as a U.S. subsidiary. LC manufactures a
consumer product for worldwide distribution. PT acts as LC
distributor in the U.S. at the wholesale level for the finished
goods.

LC does not allow unrelated parties to distribute its products.
There are no uncontrolled transactions, but similar products are
produced by other companies.

The transactions selected for the review are those from the same
industry segment that performs similar functions and has similar
risks to PT. The available information indicates that the ratio of
operating profit to sales is the most reliable profit level indicator.
After some adjustments, but not all material differences, this
ratio is calculated for each uncontrolled transaction; however,

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