Instructions For Schedule P (Form 1120-Fsc) - Transfer Price Or Commission printable pdf download

Schedule P (Form 1120-FSC) 1998

Page

General Instructions

2. Group of transactions. By checking box

Under the marginal costing rules, the

2, the FSC’s related supplier elects to group

combined taxable income of the FSC and its

Section references are to the Internal

transactions that consist of products or

related supplier is figured by subtracting from

Revenue Code unless otherwise noted.

product lines. If the group basis is elected, it

foreign trading gross receipts the direct

applies to all transactions for that product or

material and direct labor costs of producing a

Purpose of Schedule

product line completed during the tax year. If

particular item, product, or product line. See

Use Schedule P to figure the transfer price to

the election is not made, the supplier checks

Regulations section 1.471-11(b)(2)(ii). The

charge the FSC or the commission to pay to

box 1. Do not group sales and lease

combined taxable income also may be limited

the FSC under the administrative pricing rules

transactions.

to the overall profit percentage (line 10)

discussed below. The transfer price or

multiplied by the foreign trading gross

Election to group transactions. For tax

commission is used to allocate foreign trading

receipts of the FSC (line 4).

years beginning after December 31, 1997, see

gross receipts from the sale of export

Temporary Regulations section

See Temporary Regulations section

property or certain services between the FSC

1.925(a)-1T(c)(8) regarding the election to

1.925(b)-1T for more information on the

and its related supplier.

group transactions and the transition rule

marginal costing rules. Also see section

Related supplier. Under Regulations section

applicable to tax years beginning before

1.925(a)-1T for information on the transfer

1.482-1(a), a related supplier is an entity that

January 1, 1998.

pricing rules.

is owned or controlled directly or indirectly by

C—Principal business

Section B—23% of

the same interests as the FSC.

Combined Taxable Income

activity codes

Filing the Schedule

Under this method, the related supplier

See page 16 of the Instructions for Form

File the schedule for a FSC that has foreign

figures an allowable transfer price to charge

1120-FSC for the list of “Schedule P (Form

trading gross receipts during the tax year

the FSC (or an allowable commission to pay

1120-FSC) Codes for Principal Business

from either of the following sources.

to the FSC) so that the FSC will profit on the

Activity” that are to be used to group

The resale of export property or certain

sale.

activities. Enter the code number that relates

services.

to the product or product line reported on

The profit is limited to 23% of the FSC’s

line A.

The disposition of export property or

and the supplier’s combined taxable income

services in which the FSC served as

attributable to the foreign trading gross

Part I

commission agent for a related supplier.

receipts from the sale. Also see incomplete

transactions under When Not To File.

Section A—Combined Taxable Income

When Not To File

Under the administrative pricing rules, the

Section C—1.83% of

Do not complete Schedule P in the following

methods discussed below may be used in the

Foreign Trading Gross Receipts

situations.

same tax year of the FSC for separate

The section 482 method of transfer pricing

transactions (or separate groups of

Under this method, the related supplier

figures an allowable transfer price to charge

is used. If the 23% and 1.83% methods do

transactions).

the FSC (or an allowable commission to pay

not apply to a sale or if the related supplier

Full Costing

does not use the methods, the transfer price

to the FSC) so that the FSC will profit on the

sale.

for a sale by the related supplier to the FSC

Foreign trading gross receipts are the

is figured on the basis of the sales price

The profit is limited to 1.83% of the FSC’s

gross receipts of a FSC (other than a small

actually charged but is subject to section 482

foreign trading gross receipts. It is further

FSC) that has met the foreign management

and its regulations and to Temporary

and foreign economic process rules. The

limited to twice the profit determined under

Regulations section 1.925(a)-1T(a)(3)(ii).

either (a) the 23% of combined taxable

receipts are included on lines 1 and 4 and

income or (b) the marginal costing rules

The arm’s-length pricing method is used. If

must be from the sale, lease, or rental of

the transaction is with an unrelated supplier,

export property for use outside the United

(described above). Also see incomplete

the FSC bases its profit on the arm’s-length

States or for engineering or architectural

transactions under When Not To File.

price.

services for a construction project located

Limit on FSC Income (No-loss Rules)

outside the United States. For details, see the

Transactions are incomplete at year’s end.

Instructions for Form 1120-FSC beginning on

If export property bought by the FSC from

If there is a loss on line 3 or line 12, the FSC

page 2 and section 924.

may not earn a profit under either the 23%

the related supplier during the tax year is

method or the 1.83% method. Under the

unsold by the end of the FSC’s tax year or

Under the full costing rules in which the

the related supplier’s tax year in which the

FSC is the principal in the sale of export

1.83% method, the FSC’s profit on line 17

may not exceed the full costing combined

property was transferred, the 23% and 1.83%

property, the combined taxable income of the

taxable income reported on line 3. The related

methods (discussed below) cannot be used.

FSC and its related supplier is the excess of

Instead, the transfer price of the property

supplier may, however, set a transfer price or

the FSC’s foreign trading gross receipts from

rental payment or pay a commission in an

bought by the FSC is the supplier’s cost of

the sale over the total costs of the FSC and

amount that will enable the FSC to recover its

goods sold for the property. See Temporary

related supplier. These costs include the

Regulations section 1.925(a)-1T(c)(5)(i)(C) for

costs, if any, even if the result is a loss for

supplier’s cost of goods sold, and the

rules regarding the transfer price of property

supplier’s and the FSC’s noninventoriable

the related supplier.

resold during the subsequent tax year.

costs that relate to the foreign trading gross

If the FSC recognizes income while the

receipts. See Regulations section

related supplier recognizes a loss on a sale

Specific Instructions

1.471-11(c)(2)(ii). Also see Temporary

under the section 482 method, neither the

Regulations section 1.925(a)-1T(c)(6)(iii) for

23% method nor the 1.83% method may be

A—Product or product line

special rules regarding gross receipts and

used by the FSC and the related supplier (or

total costs.

Enter the product or product line that meets

by a FSC in the same controlled group and

one of the two standards below.

Line 2b. Enter an apportionment of

the related supplier) for any other sale, or

group of sales, during the tax year that falls

deductions that are not definitely allocable,

1. The major group or groups (or any

within the same SIC codes as the subject

such as interest expense and stewardship

classification or combination within a major

expenses. See Temporary Regulations

sale.

group or groups) of the Standard Industrial

sections 1.861-11T(f) and 1.861-14T(f) for

Classification (SIC) codes (see page 16 of the

Part II

details on the apportionment.

Instructions for Form 1120-FSC for the list of

codes and related product or product line), or

Line 20. If the transfer price from the related

Marginal Costing

supplier to the FSC is entered on more than

2. A recognized industry or trade use.

one line on Form 1120-FSC, attach an

The related supplier may elect to use the

B—Type of transaction

explanation indicating the portion of line 20

marginal costing rules to figure its and the

FSC’s combined taxable income provided the

that applies to each line.

Check the applicable box to indicate the sale,

FSC is treated as seeking to establish or

lease, or commission transaction that applies

Part III

maintain a foreign market for sales of export

to the FSC.

property and the sales produce foreign

Line 23. If the FSC commission from the

1. Transaction-by-transaction. Check

trading gross receipts. See Temporary

related supplier is entered on more than one

box 1 if the FSC makes pricing

Regulations sections 1.925(b)-1T(c)(1) and

line on Form 1120-FSC, attach an explanation

determinations based on each transaction.

1.927(a)-1T for information that defines a

indicating the portion of line 23 that applies to

File a Schedule P for each transaction.

“foreign market” and “export property.”

each line.

Instructions For Schedule P (Form 1120-Fsc) - Transfer Price Or Commission

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