Multiple-Year Averaging
Application in Broader Economic Downturn
Alternative Approach: Pooling of Results
Taxpayer-Initiated Adjustments
More Difficult Cases


The period from the early 1980s until mid-2008, during which many transfer pricing methods and their application matured, was one of generally strong profitability for multinational companies. Although there were downturns, most were shallow and short-lived and created no unusual transfer pricing challenges. Companies could develop transfer pricing policies in the knowledge that compliance issues would mainly involve selecting the best method for measuring results and identifying the uncontrolled comparables used to benchmark those results. In an environment characterized by healthy profits and steady economic growth in most countries, there was little concern that increasing the profits from controlled transactions in one jurisdiction might create a loss in another jurisdiction. Business cycles continued and companies did incur losses, but in general downturns could be dealt with through existing transfer pricing principles.

In contrast, the current economic downturn is bringing several basic transfer pricing issues to the fore. These include the ability of controlled taxpayers to modify existing advance pricing agreements to take account of adverse business conditions and to change their existing business structures, including longstanding allocations of risk. Controlled taxpayers and practitioners are also devoting greater attention to the transfer pricing analysis of events (or costs) such as plant closures, the scale-down of operations and employee separation. To some extent, these issues dovetail with a broader debate that is underway concerning taxpayers' ability to modify their existing business arrangements in conformity with the arm's-length principle.(1)

Traditional transfer pricing and business restructuring issues will likely continue to intersect. However, on a more practical and immediate level, taxpayers need to evaluate their transfer pricing policies and compliance strategies in light of deteriorating financial results. For example, how does a durable goods manufacturer price transactions with its distribution subsidiary when pricing at a break-even cost-plus margin would still result in a loss for the distributor? If a transfer price lower than the cost of production is necessary for a positive distribution return, will that pricing expose the distributor to a charge of dumping or unfair trade practices in the local market? Assuming that a taxpayer has not changed its basic US business structure or its allocation of risk, and assuming that it wants to keep the same basic transfer pricing methods or analysis that it used in previous years, the best approach may be to apply multiple-year analysis and to perform a more thorough analysis of comparability with uncontrolled companies.

Multiple-Year Averaging

The US transfer pricing regulations and corresponding Organization for Economic Cooperation and Development guidance recognize that multiple-year data may be useful in evaluating whether the results of a taxpayer's controlled transactions are arm's length.(2) These rules acknowledge that, particularly when applying profit-based transfer pricing methods, it is necessary to take account of business cycles and special circumstances (eg, the start-up of a business) that cannot be fully addressed through comparability adjustments. Without such rules, a profit-based method might indicate that a transfer pricing adjustment is called for simply because the tested party is at the bottom of its business cycle when the uncontrolled comparables are at the peak of theirs. The pricing of the controlled transactions might be arm's length, but the taxpayer's results could be outside the (single-year) arm's-length range determined by reference to the comparables. A multiple-year analysis, which is primarily intended to address such cyclical effects, may also be relevant when a broader downturn affects the whole economy.


Multiple-year averaging is commonly used when applying profit-based methods such as the comparable profit method.(3) In fact, under this method, data for the uncontrolled comparables generally ''should encompass at least the taxable year under review and the preceding two taxable years''.(4) The regulations also provide for use of a longer period if necessary to evaluate business cycles, lifecycles or the product under examination.(5) The underlying rationale is that the period subject to review should be long enough to ''reduce the effect of short-term variations that may be unrelated to transfer pricing".(6) A multiple-year analysis evaluates the taxpayer's results and the corresponding arm's-length ranges for the tax year under examination and for the applicable multiple-year period.(7) If the taxpayer's results for the single year fall outside the arm's-length range for that year, the taxpayer's multiple-year results are compared with the multiple-year range.(8) If the taxpayer's multiple-year results fall outside the corresponding multiple-year range, the question is whether an allocation for the single year would move the taxpayer's multiple-year result closer to the arm's-length range for the multiple-year period or any point within the range.(9) If so, an allocation for the single year is permissible. This analysis is illustrated in example four in Section 1.482-1(f)(2)(iii)(E) and examples two and three in Section 1.482-5(e) of the Treasury Regulations.

Opinions differ as to how the multiple-year provisions should be applied. Historically, taxpayers have viewed the regulations as providing two chances to pass - that is, if the taxpayer's results fall within either the single-year range or the multiple-year range, no Section 482 allocation is appropriate. However, some Internal Revenue Service (IRS) agents evidently view the regulation as providing transfer prices with two chances to fail. Under that interpretation, a Section 482 allocation is appropriate unless the taxpayer's results pass both the single-year and the multiple-year tests. Although not as critical, some confusion also surrounds the requirement that the allocation for the single year must move the taxpayer's multiple-year average result closer to the multiple-year average range for the uncontrolled comparables.(10)

Apart from the regulations, Treasury and the IRS have issued no formal guidance on multiple-year averaging. However, Field Service Advice 199945011 does provide some insight into the thinking of the IRS.(11) It concluded that an allocation involving multiple-year data should place the taxpayer's operating profits at the median (or the mean) of the comparable operating profits for the single tax year at issue - that is, the midpoint of the arm's-length range for that year. It also concluded that a Section 482 allocation is appropriate only if the taxpayer's results are outside both arm's-length ranges (single and multiple-year), and the single-year adjustment moves the taxpayer's multiple-year average results in the 'right direction'. Thus the field service advice, although not an official statement of IRS position, adopted the (generally) taxpayer-friendly 'two chances to pass' interpretation.(12)

Application in Broader Economic Downturn

One scenario that is likely to occur is as follows. A foreign durable goods manufacturer operates a subsidiary in the United States. The results of the controlled transactions with the US subsidiary are tested under the comparable profit method using a rolling three-year average and these results are within the arm's-length range for 2004 to 2007. In 2008, although pricing of the controlled transactions is unchanged, the tested party experiences sharply reduced demand, leading to reduced revenues and operating profits. The uncontrolled comparables that were historically used to benchmark profitability may or may not have experienced similar declines in their operating results during the same period. Business cycles or factors specific to the tested party may result in the uncontrolled comparables experiencing the downturn earlier or later than the tested party, or to a different degree from the tested party.(13)

The question facing a taxpayer in this situation is how much taxable income to report for 2008. If the taxpayer's multiple-year results for 2006 to 2008 are within the arm's-length range for those years, Field Service Advice 199945011 suggests that no Section 482 allocation is required for 2008. The taxpayer would then presumably file its tax return based on the transfer prices actually charged during the year.

More challenging issues arise if the taxpayer's results for 2008 and for the multiple-year period fall outside the corresponding arm's-length ranges. In that case an adjustment is probably indicated, but the amount is unclear. The informal guidance in Field Service Advice 199945011 suggests that the taxpayer should adjust its results for 2008 to the median (or the mean) of the arm's-length range for that year, although a taxpayer in this situation might wish to make a smaller adjustment to some other point within the (single-year) arm's-length range.

According to their terms, the multiple-year averaging provisions appear to deal only with Section 482 allocations made by the IRS - allocations that, by definition, take place in an examination setting.(14) They do not explicitly address self-initiated Section 482 allocations by the taxpayer which, at least in the case of a reduction of US income, need to be made on a timely filed US tax return for the year in question. If a taxpayer makes a self-initiated Section 482 allocation in real time (before the filing of the tax return), it appears that the taxpayer can adjust its results to any point in the single-year range, assuming the other conditions for the allocation are satisfied. However, the regulations are not clear on this point.

Multiple-year averaging can reduce the harshness of the results produced by a one-sided transfer pricing method such as the comparable profit method. However, it does not address what some might see as a more fundamental issue: how would similarly situated uncontrolled parties deal with a major change in economic conditions, such as a prolonged downturn? Occasionally taxpayers have used evidence concerning the response of uncontrolled parties to events such as currency devaluations or commodity price spikes in an effort to determine whether and how uncontrolled parties modify their prices in response to economic shocks. Applying such a two-sided analysis or otherwise trying to simulate the type of bargaining that takes place between uncontrolled parties presents substantial challenges. In addition, such approaches may be difficult to reconcile with a one-sided transfer pricing method such as the comparable profit method.

In any event, the multiple-year averaging provisions are likely to play an important role as controlled taxpayers apply the comparable profit method and other profit-based methods to years affected by the economic downturn. The analytical and procedural questions presented are substantial. In the scenario described above, if the single-year 2008 results move the taxpayer's three-year average outside the multiple-year range, could a four-or five-year average be used instead? What if the taxpayer historically analyzed prices on a single-year basis? Can the taxpayer now adopt a multiple-year analysis for compliance purposes?

Even more complex issues are likely to surface as these cases go through the IRS examination process. For example, assuming the common situation in which the tested party's sales and profits are both depressed, the multiple-year results under the comparable profit method may differ substantially depending on whether the profit-level indicator used to determine comparable operating profits is based on sales or assets.(15) The multiple-year averaging rules may produce unanticipated results, particularly when the effect of the economic downturn on the tested party differs from its effect on the uncontrolled comparables. Treasury and the IRS should consider updating the rules in this area or at least providing more detailed illustrations of how the existing rules would apply in common settings.

Alternative Approach: Pooling of Results

Another approach that is sometimes applied to multiple-year data involves pooling the results derived from the uncontrolled comparables. This approach treats each observation (eg, the comparable operating profits derived from the operating margin of an uncontrolled company for a particular year) as a discrete data point, rather than averaging or weight-averaging the available observations for each comparable over the multiple-year period, which is the standard approach. Pooling becomes relevant when a complete data set is unavailable - for example, when a large segment of the industry ceases operations or several companies otherwise become unsuitable for use as comparables.(16) The IRS does not favour pooling. The advance pricing agreement programme training materials observe that averaging is the preferred approach to multiple-year data, but note that pooling has sometimes been used when shown to produce more reliable results than averaging.(17)

Pooling can produce a very different arm's-length range than averaging and this may benefit either the taxpayer or the IRS. Pooling can also have undesirable effects, such as giving undue weight to individual observations of comparable operating profits under a sales-based profit-level indicator when the tested party's sales show large variations across the multiple-year period. Because pooling is relevant when the time series of data is incomplete, it may come into play when comparable companies are excluded because of persistent operating losses, bankruptcy or termination of operations, or when taxpayers examine a multiple-year period longer than the standard three-year period specified in the comparable profit method regulations. As expanded on below, all these scenarios are likely to be encountered more frequently in the coming years as the full impact of the economic downturn is felt.

Taxpayer-Initiated Adjustments

The Section 482 regulations apply to both the IRS and taxpayers. A taxpayer cannot compel the IRS to apply Section 482, but the regulations permit a taxpayer to adjust its US taxable income if necessary to reach an arm's-length result (reductions must be made on a timely filed US income tax return, but increases can be made regarding any open tax year).(18) This allows taxpayers to take into account unanticipated developments or to make other true-ups necessary to bring the tested party's results within the arm's-length range.(19)

Recent declines in revenue and profits in many sectors of the US economy suggest that taxpayer-initiated adjustments may become more prevalent. For example, assume that a controlled US distributor of heavy construction equipment was on pace in mid-2008 to meet its target operating margin of 5% for the full year. As economic conditions deteriorated in August 2008, several of the company's customers cancelled orders as they sold existing inventories. Price reductions and extended payment terms were adopted to maintain sales volume, but revenue for the balance of 2008 continued to decline, resulting in a fourth-quarter operating margin of -15%. To meet its target operating margin of 5% for 2008, the company would need to report more US taxable income than would result under the transfer prices charged.

Conversely, the economic downturn might suggest the need for a taxpayer-initiated adjustment that reduces US taxable income. For example, assume a US subsidiary provides a budgeted amount of services (eg, $10 million per year) to its foreign parent. Historically, the return to the subsidiary under the comparable profit method(20) was set at 9% by reference to the profits earned by uncontrolled providers of similar services. Updating the service provider comparables in 2008 indicates that because of deteriorating economic conditions, the top of the interquartile range is now 6%. In that situation, the taxpayer would likely consider reducing the return to the US service provider in 2008 to 6% at most.

Ironically, the multiple-year averaging provisions may limit the taxpayer's ability to make a self-initiated adjustment of its US taxable income in either direction.(21) Under the regulations, a taxpayer may apply Section 482 only if necessary to reflect an arm's-length result.(22) Based on the prevailing view that multiple-year averaging gives transfer prices two chances to pass, a self-initiated adjustment might be precluded by reference to the taxpayer's multiple-year average results,(23) although that same adjustment would be appropriate if the results for the single year were examined in isolation. In preparing income tax returns for the first year in which the full impact of the economic downturn is felt, taxpayers should keep in mind that the multiple-year averaging provisions might limit their ability to use the self-initiated adjustment mechanism.


The discussion above focused on several issues that are likely to persist during the economic downturn. Even after economic recovery begins, the downturn may have lingering effects in the form of reduced availability of uncontrolled comparables. Taxpayers and tax administrations have recently come to rely more on the comparable profit method and other profit-based methods for determining an arm's-length result.(24) Application of the comparable profit method and similar methods is based on the ability to identify a sufficient number of uncontrolled companies that are comparable to the tested party and that can be used to construct a reliable range of comparable operating profits.

In most cases the tested party under a comparable profit method performs routine functions characterized by relatively low risk and consequently the tested party is expected to earn positive returns. Correctly or incorrectly, uncontrolled companies that have persistent operating losses or that show other signs of distress are often eliminated from the set of potential comparables, almost as a threshold matter. An uncontrolled company with operating losses in one year or in two successive years might be kept as a comparable, but a company with operating losses over an extended period or whose status as a going concern is in doubt is generally rejected. This approach reflects an instinctive reaction - one that is often borne out by a more detailed analysis of the facts - that an uncontrolled company with persistent losses has a different risk profile from that of the tested party (which is generally low risk). Companies operating under Chapter 11 or Chapter 7 are also excluded for different reasons. The prevailing view is that a bankrupt company operates under conditions (eg, ongoing judicial supervision or maximization of returns to secured creditors rather than shareholders) that distinguish it from the tested party, which is deemed to operate under traditional free-market conditions with the goal of maximizing profits.(25)

Over the past year or so, companies across a broad swathe of the US economy have been affected by the economic downturn. This may call into question the ability to apply the comparable profit method and similar profit-based methods if the screening techniques described in the previous paragraph are applied in the traditional manner. When economic distress is particularly acute in an industry segment, it may be impossible to identify a suitable set of comparables in that sector, again assuming that such screening techniques are applied in the usual way.

In some settings, such as a contested IRS examination, an advanced pricing agreement negotiation or a mutual agreement proceeding, screening of comparables may yield to a more in-depth analysis of comparability.(26) In such cases it is common to review annual reports and other public financial data to determine why a company had adverse operating results. A detailed analysis of this type might show that the level of comparability between the uncontrolled company and the tested party is acceptable.

When an uncontrolled company generates operating losses in successive years, the underlying reasons for those losses might, on closer analysis, be found to apply equally to the controlled taxpayer. Alternatively, it may be possible to use a company with adverse operating results as a comparable, provided that reliable adjustments can be made to account for differences between that company and the tested party. Unfortunately, pragmatic considerations tend to win over the results of a comparability analysis. For example, it is not unheard of for loss companies to be excluded because they move the arm's-length range into very low (or negative) operating profits.

An in-depth comparability analysis should indicate whether an uncontrolled company in bankruptcy is operating under conditions that are dissimilar to those faced by the controlled party.(27) If material differences in contractual terms or other conditions are identified, it may be possible to make adjustments that reliably account for those differences.(28) Analyzing specific companies at this level of detail is costly, at least in comparison with screening techniques that simply eliminate all bankrupt companies. However, in the current economic environment, the blanket exclusion of all uncontrolled companies operating in bankruptcy may reduce the overall reliability of a comparable profit method analysis.

Most public US companies will survive the economic downturn and most will earn operating profits, despite more challenging business conditions. However, some companies will have sharply reduced profits or losses, and some of those may eventually declare bankruptcy or cease operations altogether. Under these conditions, the composition of the database of uncontrolled comparables, particularly the decision whether to exclude companies on the basis of negative operating results or bankruptcy, takes on greater importance.

Historically, the IRS and other tax administrations have assumed that a taxpayer that has a guaranteed flow of transactions from another controlled party should earn non-de minimis operating profits, without regard to adverse operating conditions that may have arisen in the taxpayer's industry. There are exceptions - for example, taxpayers in high-risk sectors, start-up or shut-down scenarios or market penetration. Even if that assumption is valid in the abstract, it will nonetheless come under scrutiny in this environment, particularly in sectors particularly hard hit by the economic downturn. The operating assumption that all parties that do business on an arm's-length basis must earn profits may be suspect when most or all of the uncontrolled companies operating in the industry sector are generating losses.

More Difficult Cases

In some cases the economic downturn may exacerbate a process of contraction or consolidation already underway in an industry sector. In extreme cases, most or all uncontrolled companies in a sector might exit the business, be acquired or no longer be viewed as appropriate comparables (eg, because of going-concern issues, operating losses or bankruptcy).

Consider the case of a vertically integrated manufacturer that historically tested discrete elements of its operations under the comparable profit method. It is common for such a manufacturer to use comparable profit method comparables to benchmark one or more low-value production activities (eg, tabletting by a pharmaceutical company or metal-stamping by a manufacturer of home appliances). The economic downturn may mean the end of the line for uncontrolled companies that have historically performed such routine functions on a standalone basis. In these situations it may be necessary to reapply the best method rule, taking into account the changed conditions in the industry.(29) Ultimately, a more pragmatic view of comparability and reliability may also be necessary. For example, one might consider using as comparables uncontrolled companies that are generating persistent losses or are in bankruptcy. Alternatively, one may need to use segment data (if available) for an uncontrolled acquirer of the former comparable or to identify uncontrolled companies that have less direct comparability to the relevant business activities of the tested party.

For their part, the IRS and other tax administrations should be flexible in evaluating whether results are arm's length under these circumstances. Tax administrators should avoid second-guessing a controlled taxpayer's decision to continue performing specific low-value activities that constitute elements of an integrated production process. A controlled party's decision to perform a function should not be questioned because it has become more difficult to evaluate the arm's-length return to that function, due to changes in industry composition.


Taxpayers will continue to face substantial challenges as they report US taxable income under the arm's-length standard. Given the increased reliance in recent years on the comparable profit method and similar profit-based methods, it may be necessary to reconsider some of the fundamental principles that have informed application of those methods. These methods should continue to provide reliable results in most cases, provided that taxpayers, practitioners and tax administrators apply them in a flexible and pragmatic manner, taking into account the changed business and economic environment.

For further information on this topic please contact John M Breen or Neal M Kochman at Caplin & Drysdale by telephone (+1 202 862 5000), fax (+1 202 429 3301) or email ( or


(1) See generally Organization for Economic Cooperation and Development, "Public Discussion Draft on Transfer Pricing Aspects of Business Restructurings" (September 19 2008), available at,3343,en_2649_33753_41328775_1_1_1_1,00.html. The draft was released for comment in 2008, but the project began in 2005.

(2) Treasury Regulation Section 1.482-1(f)(2)(iii); Organization for Economic Cooperation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, paras 1.49-1.51.

(3) See also discussion of the transactional net margin method in the Organization for Economic Cooperation and Development Transfer Pricing Guidelines, para 3.26 and following.

(4) Treasury Regulation Section 1.482-5(b)(4).

(5) Treasury Regulation Section 1.482-1(f)(2)(iii)(B).

(6) Treasury Regulation Section 1.482-1(f)(2)(iii)(D).

(7) Treasury Regulation Section 1.482-1(f)(2)(iii)(B).

(8) Treasury Regulation Section 1.482-1(f)(2)(iii)(D).

(9) Id.

(10) Some interpret 'only to the extent that' to mean that the single-year allocation must bring the taxpayer to the edge of the interquartile range for the multiple-year period. In contrast, Field Service Advice 199945011 (infra) suggests that the allocation for the single year must have the ''correct sign'': it cannot move the taxpayer's multiple-year results (results that by definition are outside the interquartile range for the multiple-year period) further away from the multiple-year range. See also Treasury Regulation Section 1.482- 1(f)(2)(iii)(D).

(11)The main issue in the field service advice was the appropriate analysis under the comparable profit method of anti-dumping duty cash deposits that a US subsidiary had posted under 19 USC Section 1673(e) - deposits that the US government refunded to the subsidiary in a subsequent tax year.

(12) As developed further below, this interpretation may cause difficulties when the taxpayer seeks to make a 'self-initiated' adjustment under Treasury Regulation Section 1.482-1(a)(3).

(13) As a practical matter, taxpayers must cope with the fact that financial data for the uncontrolled comparables may lag the data for the tested party by at least six months. In developing a compliance strategy, taxpayers must coordinate data availability with the due dates for income tax returns and contemporaneous transfer pricing documentation - due dates that often differ from one jurisdiction to another.

(14) This can be seen, for example, in the regulation's cross-reference to Section 1.482-1(g)(2)(iii), which defines a prior-year Section 482 allocation that is ''finally determined". See Treasury Regulation Section 1.482-1(f)(2)(iii)(D) (final sentence). None of the events that constitute a final determination correspond exactly to a taxpayer initiated adjustment, although ''payment of the deficiency'' (Treasury Regulation Section 1.482-1(g)(2)(iii)(C)) would arguably permit a prior-year self-initiated adjustment to be taken into account in calculating the taxpayer's multiple-year average results in subsequent tax years.

(15) Under a sales-based profit-level indicator, comparable operating profits are weighted to the tested party's sales, which are likely to be depressed in the first year of the economic downturn compared with previous years. In contrast, the level of the tested party's operating assets or capital employed is less likely to decrease substantially from one year to the next, even during an economic downturn.

(16) If the time series of data is complete, pooling and averaging should produce identical (or nearly identical) results.

(17) Advance Pricing Agreement Study Guide at 44. The IRS advanced pricing agreement training materials are available at,,id=96186,00.html. The advanced pricing agreement office cautions that the training materials should not be relied on or otherwise cited as precedent by taxpayers.

(18) Treasury Regulation Section 1.482-1(a)(3).

(19) A taxpayer-initiated adjustment that increases US taxable income may prevent a Section 482 allocation by the IRS and may also eliminate associated penalty exposure. But regardless of the direction of the self-initiated adjustment, a US taxpayer seeking a corresponding adjustment in a foreign country generally must request assistance from the competent US authority. The considerations relevant to these adjustments are discussed in greater detail in H David Rosenbloom, ''Self-Initiated Transfer Pricing Adjustments", Tax Notes International, June 4 2007, p 1019, Doc 2007-12382, or 2007 WTD 111-6.

(20) Assume that the conditions for use of the comparable profit method are satisfied. See temporary Treasury Regulation Section 1.482-9T(f). Also assume that the services are not eligible for the services cost method in temporary Treasury Regulation Section 1.482-9T(b).

(21)The Section 482 allocation at issue in Field Service Advice 199945011 was initiated by the taxpayer, not the IRS.

(22) Treasury Regulation Section 1.482-1(a)(3). See also IRS general legal advice memorandum, AM-2007-007 (March 15 2007) (addressing the commensurate with income standard).

(23) That is, the taxpayer's multiple-year average results might be within the range of multiple-year average results for the comparables, or the potential allocation for the single year might move the taxpayer's multiple-year results away from the range of multiple-year average results for the comparables.

(24) In the case of a US subsidiary of a foreign parent, the subsidiary's operating profit generally is tested directly against US comparable companies with similar functions and risks. In the case of a US parent, the results of the foreign subsidiary often are tested against suitable comparables and if those results are determined to be arm's length, the residual profit earned by the US parent is deemed to be arm's length.

(25) Other conditions that may affect comparability include financial assistance or loan guarantees from the federal government, both of which have become more common in some sectors. See, for example, ''U.S. Offers $5 Billion to Car Suppliers", The Wall Street Journal, March 20 2009, available at

(26) For a general discussion of loss comparables that predates the economic downturn, see Organization for Economic Cooperation and Development, "Comparability: Public Invitation to Comment on a Series of Draft Issues Notes", at 72-74 (May 2006). The document is online at,3343,en_2649_37989753_36651660_1_1_1_1,00.html.

(27) Paradoxically, a bankrupt company may have contractual terms with third parties that are more favourable than the terms the controlled party has in its contracts with third parties. For example, a bankruptcy court may require the company's customers to accept pass-through of increases in raw material costs or it may void a collective bargaining agreement that specifies above-market wages and benefits to the company's employees.

(28) In the case of a bankrupt company that has a more favourable labour contract, the comparable's labour costs might be adjusted upwards to reflect the prevailing wage rates in the applicable industry-wide collective bargaining agreement.

(29) The Organization for Economic Cooperation and Development Transfer Pricing Guidelines (para 1.12) observe that in some cases, information necessary to apply the arm's-length principle may be difficult to obtain or may not exist. In this context, the guidelines also note that transfer pricing is not an exact science, but calls for ''the exercise of judgment on the part of both the tax administration and the taxpayer'." Id.

An earlier version of this update appeared in Tax Notes International.

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