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The objectives of establishing transfer prices to form a basis for fair evaluation ofperformance and at the same time minimize one or more types of cost through discretionarytransfer pricing often conflict with one anotherGovernment ReactionsNational tax authorities have guidelines regarding what is an acceptable transfer price for taxpurposesThese national laws often are based on OECD guidelinesThe basic rule is that intercompany transactions should be made at an “arm’s length price” 公平交易Section 482 of the U.S. Internal Revenue CodeSection 482 of the U.S. Internal Revenue Code requires intercompany transactions to becarried out at arm’s length prices-Section 482 gives the IRS the power to audit and adjust taxpayers’ international transferprices if they are not found to be in compliance with Treasury department regulations.-The IRS also may impose a penalty of up to 40% of the underpayment int eh case of agross valuation misstatement.U.S. Treasury Regulations establish specific guidelines for……The “best method rule” requires taxpayers to use the method that under the facts andcircumstances provides the most reliable measure of an arm’s length priceThe tow primary factors to be considered in determining the best method are:-the degree of comparability between the intercompany transaction and any comparableuncontrolled transactions-the quality of the data and assumptions used in the analysisOne of five specific methods must be used to determine the arm’s length price in a sale oftangible property. These are:2