Treas. Reg. 1.482-7: Uncontrolled Goods or Services

Treas. Reg. Section 1.482-7 is the uncontrolled goods or services section of the section 482 regulations. The section carries two methods for pricing the controlled supply of goods or services where the uncontrolled reference is the cost side or the uncontrolled sale: the cost plus method (the controlled party’s costs plus the comparable mark-up) and the uncontrolled sales price (UNSP) method (the price the controlled party receives from unrelated buyers for the identical property).

Section purpose

In plain English, Section 1.482-7 says: where the controlled party supplies goods or services and the arm’s length charge is most reliably measured from the supply side — from the costs the supply carries, or from the uncontrolled sales of the same property — the methods in the section apply. The cost plus method is the US home of the cost-plus discipline the OECD guidelines carry as one of the five methods; the UNSP method is the internal-sale reference — the uncontrolled price of the identical property as the arm’s length charge, the CUP logic applied to the controlled party’s own uncontrolled sales.

The operative standard

• The cost plus method: the cost base plus the mark-up. The arm’s length charge for the goods or services the controlled party supplies is the controlled party’s costs plus a mark-up equal to the mark-up an independent supplier of the same (or similar) goods or services would have earned under comparable circumstances. The tested party is the supplier — the contract manufacturer, the service provider — and the mark-up is the comparable supplier’s mark-up on a comparable cost base.
• The UNSP method: the uncontrolled sale as the reference. The arm’s length charge is the price the controlled party actually receives from unrelated buyers for the identical property, in the same market, under comparable circumstances — the controlled party’s own uncontrolled sales as the benchmark. The method is the CUP discipline pointed at the controlled party’s internal sales: the third-party price of the identical property is the arm’s length price of the controlled sale.
• The comparability runs on the supply. Both methods run on the supply’s comparability — the goods or services, the cost structure, the functions, the market — with the differences that would materially affect the mark-up or the price adjusted for, or the comparables discarded. The cost base is the method’s arithmetic: the costs that go into the base are the costs the supply actually carries, on the accounts.

Key elements

Element	The content
The cost plus method	The controlled party’s costs + the comparable mark-up (the independent supplier’s mark-up on a comparable cost base) — the tested party is the supplier
The cost base	The costs of the goods or services supplied — the costs the supply actually carries, the base the mark-up runs on
The UNSP method	The price the controlled party receives from unrelated buyers for the identical property, in the same market under comparable circumstances — the internal-sale reference
The comparability	On the supply: the goods or services, the cost structure, the functions, the market — the differences that materially affect the mark-up or the price adjusted for
The order of preference	The cost plus method sixth, the UNSP method seventh in the US order — the Section 1.482-1 ranking that puts the cost-side routes after the direct-price and profit-split methods
The documentation	The cost base, the mark-up analysis, the uncontrolled sales (for the UNSP) — the Section 1.6662-6 content for the method

How it maps to the OECD method set

• The cost plus is the OECD cost plus. The OECD’s cost plus method (the third of the five methods, the supplier-side test) is the Section 1.482-7 cost plus in the OECD dialect — the cost plus method glossary carries the term, and the cost plus vs TNMM comparison the selection boundary with the pool methods.
• The UNSP is the CUP family. The UNSP’s logic — the uncontrolled price of the identical property as the arm’s length charge — is the CUP logic applied to the controlled party’s own uncontrolled sales: the internal price reference, the strongest form of the direct-price test where the internal sales exist.
• The OECD list has no UNSP separately. The OECD guidelines reach the same result through the CUP (the internal uncontrolled sales as the comparable); the US regulation names the route as its own method in the order of preference — the methods overview keeps the two presentations in one table.

Practice notes for the Indian group with a US affiliate

• The contract manufacturer and the service provider are the fact pattern. The Indian entity that manufactures to the US affiliate’s specification, or provides the routine services, is the tested party the cost plus prices — the cost base plus the mark-up, the economics the Indian Local File presents under the TNMM cost-plus PLI and the US file presents under Section 1.482-7. The contract manufacturing guide carries the fact pattern.
• The cost base is the number both examinations audit. The cost base that goes into the mark-up is the cost base in the accounts — the computation on a different cost base than the accounts is the finding that re-derives the PLI, line by line, in both regimes. The base is documented, the allocations behind it are shown, and the file carries the same base in both presentations.
• Check the internal sales before reaching for the pool. Where the Indian entity sells the identical property to unrelated third parties, the UNSP (the internal CUP) is the first-preference answer in the US order and the gold standard in the Indian file — the how to choose a method framework runs the check. The cross-border map is in the US transfer pricing guide.

Related docs

• US transfer pricing — the Section 482 overview
• Treas. Reg. 1.482-1 — the order of preference
• Cost plus method — the glossary entry
• How to choose a method — the decision framework