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he State Administration of Taxation (SAT) has released a circular urging taxation bureaus to strengthen supervision of cross-border transactions, to prevent loss of tax revenue during the international financial crisis, China Business News (CBN) reported on July 29. The aim is to prevent multinational enterprises from using transfer pricing mechanisms to report spurious losses in China and thereby avoid taxation.

The IRS issued Rev. Proc. 2009-31 which provides the procedures by which a taxpayer may: (1) obtain IRS consent to treat some or all intercompany transactions on a separate entity basis under Regs. ยง 1.1502-13 (e) (3); (2) revoke such consent, or have such consent revoked by the IRS; and (3) obtain the IRS's consent to change from separate entity reporting to single entity reporting where a valid consent from the IRS to report intercompany transactions on a separate entity basis was not previously obtained.

The methods used in the regulations suffer from lags and they do not track business cycle turning points. A better method of setting an annual target, a revised moving average, uses a two-step approach to smoothing annual data. This method is much better at tracking business cycle turning points than a simple moving average. Because the resulting targets are better at reflecting business cycles in real time, there is less risk of falling outside of the arm's-length range in any test done after year-end

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