Stanley I. Langbein (Miami) has published Transfer Pricing and the Outsourcing Problem, 106 Tax Notes 1299 (Mar. 14, 2005), also available on the Tax Analysts web site as Doc 2005-3666, 2005 TNT 49-67.  Here is the abstract:

In this special report, Prof. Langbein examines amendments to the § 482 regulations proposed in the late summer of 2003. These proposals would amend the provisions of the existing regulations, promulgated in 1994, governing the ownership of intangible property and the residual profit-split method of making transfer pricing adjustments. Prof. Langbein argues that those proposed amendments weaken the structure of the transfer pricing system established by the 1994 regulations, and that they raise issues in relation to current debates about "outsourcing" of skilled labor, and the role of international tax policy in creating incentives to the export of skilled labor opportunities. Prof. Langbein undertakes a brief review of the background of the 1994 regulations to demonstrate that they attempted to resolve policy conflicts concerning the prevailing "arm’s length" system of making transfer price adjustments by giving a central role to adjustments with respect to intangible property owned by different components of an integrated corporate group. Critical to that effort as a last resort is the residual profit-split method, which, Langbein asserts, in the final analysis mandates making allocations based on the relative level of intangible development costs borne by the various members of the group. He also argues that the residual profit-split method, although promulgated as an aspect of the "arm’s length" regime, is really a form of "modified fractional apportionment," a method historically identified as the polar opposite of "arm’s length." But Prof. Langbein also argues that this modified system, with its emphasis on intangible development costs, contributes to the "outsourcing" of skilled labor opportunities. At the same time, Prof. Langbein notes that the current regulations create an alternative to this use of the residual profit-split method — and that this alternative can be conceived as a kind of "modified arm’s- length" system. Prof. Langbein argues that the availability of that interpretation of the regulations mitigates the tendency of the regulations to contribute to the outsourcing problem. But Prof. Langbein also shows that the proposed changes to the regulations governing the ownership of intangibles and the residual profit-split method destroy that alternative, thus aggravating the contribution the regulations make to the outsourcing problem. Prof. Langbein concludes that the proposals are objectionable because they intensify the outsourcing problem, while at the same time they destroy the progress made by the 1994 regulations toward rationalizing and rendering workable the "arm’s-length" system of making transfer pricing adjustments.