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

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Schedule P (Form 1120-FSC) (Rev. 12-2008)
Page
Format of tabular schedules. If a
supplier’s cost of goods sold, and the
same controlled group and the related
tabular schedule is attached to Schedule
supplier’s and the FSC’s
supplier) for any other sale, or group of
P, the schedule must:
noninventoriable costs that relate to the
sales, during the tax year that falls
foreign trading gross receipts. See
within the same NAICS code (or, if
Be in spreadsheet or similar format;
Regulations section 1.471-11(c)(2)(ii).
applicable, SIC code) as the subject
List the taxpayer’s name and EIN on
sale.
Also see Temporary Regulations section
each numbered page;
1.925(a)-1T(c)(6)(iii) for special rules
Section B–23% of Combined
Be formatted in columns that
regarding gross receipts and total costs.
correspond to items A, C, and each line
Taxable Income Method
Line 2b. Include an apportionment of
item in Parts I, II, and III of Schedule P;
Under this method, the related supplier
deductions that are not definitely
and
figures an allowable transfer price to
allocable, such as interest expense and
Show totals in each column.
charge the FSC (or an allowable
stewardship expenses. See Temporary
Item C–Principal Business Activity
commission to pay to the FSC) so that
Regulations sections 1.861-11T(f) and
Code. If applicable, use the list of
the FSC will profit on the sale.
1.861-14T(f) for details on the
Principal Business Activity codes on the
apportionment.
The profit is limited to 23% of the
last page of the Instructions for Form
FSC’s and the supplier’s combined
Marginal Costing
1120-FSC to group activities. Enter the
taxable income attributable to the
Under the marginal costing rules, the
six-digit number that relates to the
foreign trading gross receipts from the
combined taxable income of the FSC
corresponding product or product line
sale. Also see item 3 (regarding
and its related supplier is figured by
reported in item A.
incomplete transactions) under When
subtracting from foreign trading gross
Note. If the FSC used the SIC codes for
Not To File on page 2.
receipts the direct material and direct
Schedule P in prior tax years, it may
Section C–1.83% of Foreign
labor costs of producing a particular
continue using the SIC codes for the
Trading Gross Receipts Method
item, product, or product line. See
current tax year.
Regulations section 1.471-11(b)(2)(ii).
Under this method, the related supplier
Part I
The combined taxable income also may
figures an allowable transfer price to
be limited to the overall profit
charge the FSC (or an allowable
Section A–Combined Taxable
percentage (line 10) multiplied by the line
commission to pay to the FSC) so that
Income
4 foreign trading gross receipts.
the FSC will profit on the sale.
Under the administrative pricing rules,
See Temporary Regulations section
The profit is limited to 1.83% of the
the methods discussed below may be
1.925(b)-1T for more information on the
FSC’s foreign trading gross receipts. It is
used in the same tax year of the FSC for
marginal costing rules. Also see section
further limited to twice the profit
1.925(a)-1T for information on the
separate transactions (or separate
determined under either (a) the 23% of
groups of transactions).
transfer pricing rules.
combined taxable income method or
(b) the marginal costing rules (described
Full Costing
Limit on FSC Income (No-loss Rules)
above). Also see item 3 (regarding
Foreign trading gross receipts are the
If there is a combined loss on a
incomplete transactions) under When
gross receipts of a FSC (other than a
transaction or group of transactions, the
Not To File on page 2.
small FSC) that has met the foreign
FSC may not earn a profit under either
management and foreign economic
the 23% method or the 1.83% method.
Part II
process rules. The receipts must be
Under the 1.83% method, the FSC’s
Line 20. If the transfer price from the
from the sale, lease, or rental of export
profit on line 17 may not exceed the full
related supplier to the FSC is entered on
property for use outside the United
costing combined taxable income
more than one line on Form 1120-FSC,
States or for engineering or architectural
reported on line 3. The related supplier
attach an explanation indicating the
services for a construction project
may, however, set a transfer price or
portion of line 20 that applies to each
rental payment or pay a commission in
located outside the United States. For
line.
details, see section 924 and Foreign
an amount that will enable the FSC to
Trading Gross Receipts in the
recover its costs, if any, even if the
Part III
result is a loss for the related supplier.
Instructions for Form 1120-FSC.
Line 23. If the FSC commission from the
If the FSC is the principal in the sale
If the FSC recognizes income while
related supplier is entered on more than
of export property, the combined taxable
the related supplier recognizes a loss on
one line on Form 1120-FSC, attach an
income of the FSC and its related
a sale under the section 482 method,
explanation indicating the portion of line
supplier is the excess of the FSC’s
neither the 23% method nor the 1.83%
23 that applies to each line.
foreign trading gross receipts from the
method may be used by the FSC and
sale over the total costs of the FSC and
the related supplier (or by a FSC in the
related supplier. These costs include the

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