Eighth Circuit Hands 3M a Surprise Win in Transfer-Pricing Showdown
The Big Picture: U.S. multinationals just got fresh ammunition for fighting cross-border adjustments after the Eighth Circuit reversed an IRS victory in the long-running 3M transfer-pricing case. The appeals court said the agency overstepped when it tried to pull nearly $24 million of Brazilian income back into 3M’s U.S. tax base, a move Bloomberg Tax called an "overreach of Section 482 authority" (Bloomberg Tax).
The Details: In a 3-0 decision, the court tossed the Tax Court’s 2023 ruling that had sided with the IRS, holding that Treasury’s so-called blocked-income rule can’t trump statutory limits. Law360 noted the panel found "Brazilian legal restrictions stop taxable income adjustment" and that Treasury regulations "can’t preempt Congress" (Law360). The case now heads back to the Tax Court for a do-over consistent with the appellate opinion.
Why It Matters: Transfer-pricing pros say the opinion could narrow the IRS’ toolkit for reallocations involving foreign legal barriers. "The reaction was swift," Bloomberg Tax reported, with practitioners calling it the most significant Section 482 decision since Altera. Expect companies with blocked-income fact patterns to revisit their positions, and for the IRS to rethink its litigation strategy.
Around the Tax World
• Sweden tweaks interest bar: Stockholm unveiled a bill to generally allow deductions on EEA-sourced related-party loans, unless the arrangement is “artificial”, to keep its rules EU-compliant (KPMG Sweden).
• EU eyes UN driver’s seat: The European Commission wants a mandate to negotiate the dispute-resolution chapter of the emerging U.N. global tax treaty on behalf of all member states, according to Law360.
• Crypto gets a $300 pass? Coinbase told the U.S. Senate Finance Committee that a de minimis exemption for crypto transactions under $300 would "encourage everyday use," but Senator Elizabeth Warren warned it could fuel a $50 billion tax-gap problem (OneSafe).
• CJEU referral alert: Austria’s top court asked the CJEU whether taxing foundation payouts to non-resident beneficiaries breaches free-movement principles, one of several fresh items in KPMG’s latest EU Tax Centre bulletin.
By the Numbers
Prime Number: $24,000,000 , the amount of Brazilian income the IRS tried to reallocate to 3M before the Eighth Circuit slammed on the brakes.
Looking Ahead
All eyes are now on how the IRS recalibrates its blocked-income playbook, and whether Treasury chooses to rewrite the disputed regs. Meanwhile, Sweden’s interest deduction bill is slated to kick in on January 1, 2026, once parliament has its say.
Prepared by MyTax - mytax.com.ng