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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: DRRISK who wrote (65045)	7/14/1999 3:24:00 PM
From: Ginco	Respond to of 97611

COMPAQ COMPUTER SCORES MAJOR VICTORY IN TAX COURT CHICAGO, Jul 14, 1999 /PRNewswire via COMTEX/ -- On July 2, 1999, Chief Judge Mary Ann Cohen of the Tax Court flatly rejected an attempt by the IRS to impose additional income tax on Compaq Computer Corporation (NYSE: CPQ) based on transfer prices paid to its subsidiary in Singapore for printed circuit assemblies ("PCAs"). Compaq was represented by the law firm of Baker & McKenzie in this matter. The Tax Court rarely grants a complete victory to either a taxpayer or the IRS in transfer pricing cases, and generally upholds at least some portion of the transfer pricing adjustments asserted by the IRS. In this case, however, Judge Cohen rewarded Compaq's overwhelming evidence and legal arguments with a 100% victory -- zero additional tax. When the IRS first asserted proposed adjustments, it sought to replicate the results in two similar cases involving Apple Computer and National Semiconductor. Indeed, the IRS based its entire case in Compaq on several "expert" witnesses who also testified on behalf of the IRS against Apple. These expert witnesses wilted under intense cross-examination by Compaq's trial counsel, however, and eventually conceded at trial the essential points in the case. The Court concluded that the chief expert witness of the IRS used "unrealistic" data in his formulas, and that the IRS adjustments were "arbitrary, capricious, and unreasonable." Ultimately, the IRS was unable to match its success in other recent transfer pricing cases because Compaq presented overwhelming evidence thatthe prices paid to its Singapore affiliate, after adjustment for "minor physical differences" in accordance with the comparable uncontrolled price method ("CUP method") in the IRS regulations, were consistent with the prices thatCompaq paid to unrelated subcontractors for 3.6 million similar PCAs. The IRStried to counter this direct evidence of arm's length prices with a general allegation that Compaq's Singapore affiliate made too much money. Relying on another transfer pricing case won by Baker & McKenzie for Bausch & Lomb, the Tax Court rejected the IRS focus on the profits earned by the Singapore affiliate, and emphasized that "a large profit margin does not prevent use of the CUP method." Mark Oates of Baker & McKenzie's Chicago office led a team of six attorneys from the Firm's Chicago, Washington, D.C. and Palo Alto offices in Compaq's litigation. Baker & McKenzie's tax litigation group hassuccessfully defended numerous taxpayers against transfer pricing adjustments and other income tax adjustments. There are two non-transfer pricing issues in the Compaq case that are still pending before the Tax Court. The Tax Court's opinion in the Compaq case is available on the U.S. Tax Court web site at ustaxcourt.gov, and a more thorough discussion of the case is available on Baker & McKenzie's web site at www.bakerinfo.com .