Georgia companies opening affiliates in overseas markets may submit to the Internal Revenue Service (IRS) their transfer pricing agreements before their investments begin to earn profits, said Richard Barrett, the director of the IRS’s advance pricing agreement program, at the World Trade Center Atlanta.

      Speaking at the Southeast Transfer Pricing Seminar held Jan. 29, Mr. Barrett said the IRS will consider advance pricing agreement requests that involve market penetration strategies, provided they are bilateral and assign profits to the affiliate that assumed the risk and shouldered the losses during the early phases of the project.

      Mr. Barrett said that the U.S. government would not approve a plan that allows profits to reside outside the United States when a penetration strategy succeeds and the U.S. affiliate has built the market and accepted the costs of building the market.

      He also said that the IRS will expect companies to show that there is a process or a plan that addresses what happens once the U.S. affiliate comes out of the penetration period.

      Computer software companies, however, may not be able to benefit from the IRS’s policy because their products may not have a sufficiently long shelf life to justify a market penetration tax strategy, Mr. Barrett warned.

      The IRS’s advance pricing agreement can provide approval for cost-sharing arrangements at a time when intercompany transfer pricing issues have come under close scrutiny by the authorities of most developed countries.