Silicon Valley chip manufacturer Xilinx has lost an appeals court ruling in a tax dispute with the IRS that could have implications for other multinational companies that use transfer pricing.

The chip maker received an adverse judicial ruling from the U.S. Court of Appeals for the Ninth Circuit, which reversed an August 2005 ruling by the U.S. Tax Court concerning Xilinx’s cost-sharing agreement with its Irish subsidiary, Xilinx Ireland. The dispute concerned a transfer-pricing arrangement that Xilinx had set up in which it allocated part of its research and development costs to the Irish subsidiary, but kept in the U.S. the entire value of its stock option deductions for its R&D employees.

The Tax Court had agreed with Xilinx in 2005 that no amount for stock options was to be included in the company's cost-sharing agreement with Xilinx Ireland. The IRS appealed the decision to the U.S. Court of Appeals for the Ninth Circuit. Xilinx opposed that appeal, believing that the Tax Court had decided the case correctly, but the Ninth Circuit has now ruled against the company in a 2-1 decision.

Xlinx said the Ninth Circuit decision does not affect the company’s operational direction, and it does not believe the decision will have a material impact on its future earnings. Xilinx added, “It is premature at this time to comment on the company's next steps as a result of the decision.”

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