Schedule P (Form 1120-Fsc) - Transfer Price Or Commission Page 3

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Schedule P (Form 1120-FSC) (Rev. 9-2017)
Format of tabular schedules. If a
supplier’s cost of goods sold, and the
same controlled group and the related
supplier) for any other sale, or group of
tabular schedule is attached to Schedule
supplier’s and the FSC’s
P, the schedule must:
noninventoriable costs that relate to the
sales, during the tax year that falls within
foreign trading gross receipts. See
the same NAICS code (or, if applicable,
• Be in spreadsheet or similar format;
Regulations section 1.471-11(c)(2)(ii).
SIC code) as the subject sale.
• List the taxpayer’s name and EIN on
Also see Temporary Regulations section
Section B—23% of Combined
each numbered page;
1.925(a)-1T(c)(6)(iii) for special rules
Taxable Income Method
regarding gross receipts and total costs.
• Be formatted in columns that
Under this method, the related supplier
correspond to items A, C, and each line
Line 2b. Include an apportionment of
figures an allowable transfer price to
item in Parts I, II, and III of Schedule P;
deductions that are not definitely
charge the FSC (or an allowable
allocable, such as interest expense and
commission to pay to the FSC) so that
stewardship expenses. See Temporary
• Show totals in each column.
the FSC will profit on the sale.
Regulations sections 1.861-11T(f) and
Item C—Principal Business Activity
1.861-14T(f) for details on the
The profit is limited to 23% of the
Code. If applicable, use the list of
FSC’s and the supplier’s combined
Principal Business Activity codes on the
taxable income attributable to the foreign
Marginal Costing
last page of the Instructions for Form
trading gross receipts from the sale. Also
1120-FSC to group activities. Enter the
Under the marginal costing rules, the
see item 3 (regarding incomplete
six-digit number that relates to the
combined taxable income of the FSC
transactions) under When Not To File on
corresponding product or product line
and its related supplier is figured by
page 2.
reported in item A.
subtracting from foreign trading gross
Section C—1.83% of Foreign
receipts the direct material and direct
Note: If the FSC used the SIC codes for
Trading Gross Receipts Method
labor costs of producing a particular
Schedule P in prior tax years, it may
item, product, or product line. See
continue using the SIC codes for the
Under this method, the related supplier
Regulations section 1.471-11(b)(2)(ii).
current tax year.
figures an allowable transfer price to
The combined taxable income also may
charge the FSC (or an allowable
Part I
be limited to the overall profit percentage
commission to pay to the FSC) so that
(line 10) multiplied by the line 4 foreign
the FSC will profit on the sale.
Section A—Combined Taxable
trading gross receipts.
The profit is limited to 1.83% of the
See Temporary Regulations section
FSC’s foreign trading gross receipts. It is
Under the administrative pricing rules,
1.925(b)-1T for more information on the
further limited to twice the profit
the methods discussed below may be
marginal costing rules. Also see section
determined under either (a) the 23% of
used in the same tax year of the FSC for
1.925(a)-1T for information on the
combined taxable income method, or
separate transactions (or separate
transfer pricing rules.
(b) the marginal costing rules (described
groups of transactions).
Limit on FSC Income (No-Loss Rules)
above). Also see item 3 (regarding
Full Costing
incomplete transactions) under When
If there is a combined loss on a
Not To File on page 2.
Foreign trading gross receipts are the
transaction or group of transactions, the
gross receipts of an FSC (other than a
FSC may not earn a profit under either
Part II
small FSC) that has met the foreign
the 23% method or the 1.83% method.
management and foreign economic
Under the 1.83% method, the FSC’s
Line 20. If the transfer price from the
process rules. The receipts must be from
profit on line 17 may not exceed the full
related supplier to the FSC is entered on
the sale, lease, or rental of export
costing combined taxable income
more than one line on Form 1120-FSC,
property for use outside the United
reported on line 3. The related supplier
attach an explanation indicating the
States or for engineering or architectural
may, however, set a transfer price or
portion of line 20 that applies to each
services for a construction project
rental payment or pay a commission in
located outside the United States. For
an amount that will enable the FSC to
Part III
details, see section 924 and Foreign
recover its costs, if any, even if the result
Trading Gross Receipts in the
is a loss for the related supplier.
Line 23. If the FSC commission from the
Instructions for Form 1120-FSC.
If the FSC recognizes income while
related supplier is entered on more than
If the FSC is the principal in the sale of
the related supplier recognizes a loss on
one line on Form 1120-FSC, attach an
export property, the combined taxable
a sale under the section 482 method,
explanation indicating the portion of line
income of the FSC and its related
neither the 23% method nor the 1.83%
23 that applies to each line.
supplier is the excess of the FSC’s
method may be used by the FSC and the
foreign trading gross receipts from the
related supplier (or by an FSC in the
sale over the total costs of the FSC and
related supplier. These costs include the


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