There are also business restructurings whereby more intangibles or risks are allocated to operational entities (e.g. to manufacturers or distributors). Business restructurings can also consist of the rationalisation, specialisation or de-specialisation of operations (manufacturing sites and/or processes, research and development activities, sales, services), including the downsizing or closing of operations. The arm’s length principle and guidance in this chapter apply in the same way to all types of transactions comprising a business restructuring, irrespective of whether they lead to a more centralised or less centralised business model.
TPG2017 Chapter IX paragraph 9.3
Category: A. Scope, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter IX: Transfer Pricing Aspects of Business Restructurings | Tag: Business restructuring, De-specialisation of operations, Downsizing of operations, Termination of operations
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- TPG2022 Chapter IX paragraph 9.4Some of the reasons reported by business for restructuring include the wish to maximise synergies and economies of scale, to streamline the management of business lines and to improve the efficiency of the supply chain, taking advantage of the development of web-based technologies...
- TPG2022 Chapter IX paragraph 9.10A business restructuring may involve cross-border transfers of something of value, e.g. of valuable intangibles, although this is not always the case. It may also or alternatively involve the termination or substantial renegotiation of existing arrangements, e.g. manufacturing arrangements, distribution arrangements, licences, service...
- TPG2022 Chapter IX paragraph 9.19Risks are of critical importance in the context of business restructurings. Usually, in the open market, the assumption of risk associated with a commercial opportunity affects the profit potential of that opportunity, and the allocation of risk assumed between the parties to the...
- TPG2022 Chapter IX paragraph 9.29At arm’s length, there are situations where the restructured entity would have had no clearly more attractive option realistically available to it than to accept the conditions of the restructuring, e.g. a contract termination – with or without indemnification as discussed at Section...
- TPG2022 Chapter IX paragraph 9.36In assessing the commercial rationality of a restructuring under the guidance for non-recognition under Section D.2 of Chapter I, the question may arise whether to look at one transaction in isolation or whether to examine it in a broader context, taking account of...
- TPG2022 Chapter IX paragraph 9.14Aspects of identifying the commercial or financial relations between the parties which are particularly relevant to determining the arm’s length conditions of business restructurings, are analysed in the following sections: The accurate delineation of the transactions comprising the business restructuring and the functions,...
- TPG2022 Chapter IX paragraph 9.15Restructurings can take a variety of different forms and may involve two or more members of an MNE group. For example, a simple pre-restructuring arrangement could involve a full-fledged manufacturer producing goods and selling them to an associated full-fledged distributor for on-sale into...
- TPG2022 Chapter IX paragraph 9.18The accurate delineation of the transactions comprising the business restructuring requires performing a functional analysis that seeks to identify the economically significant activities and responsibilities undertaken, assets used or contributed, and risks assumed before and after the restructuring by the parties involved. Accordingly,...
- Vienna Convention on the Law of Treaties 1969The Vienna Convention was done at Vienna on 23 May 1969 and entered into force on 27 January 1980. It is regarded as one of the most important instruments in treaty law and remains an authoritative guide in disputes over treaty interpretation. The...
- 2020: ATO Alert on arrangements and schemes connected with DEMPE of intangiblesThe ATO is currently reviewing international arrangements that mischaracterise Australian activities connected with the development, enhancement, maintenance, protection and exploitation (DEMPE) of intangible assets. Such arrangements may be non-arm’s length or structured to avoid tax obligations, resulting in inappropriate outcomes for Australian tax...
Related Case Law
- Netherlands vs Restructuring BV, September 2017, Rechtbank ZWB, No BRE 15/5683A Dutch company was engaged in smelting of zinc. The business was then restructured, for which the company received a small compensation payment. Dutch tax authorities disagreed with both the amount of compensation payment and the arm’s-length remuneration of the post restructuring manufacturing activities. Until 2003 the Dutch...
- Switzerland vs “Merger-Loss AG”, January 2012, Bundesgericht , Case No 2C-351/2011The deduction of losses resulting from a reorganisation involving a merger with a company in liquidation is not allowed if the sole reason for the merger was the deduction of such losses. In the present case, the Swiss Federal Supreme Court allowed the...
- Denmark vs H Group, April 2019, Tax Tribunal, Case No. SKM2019.207.LSRIntangibles had been transferred from a Danish subsidiary to a US parent under a written agreement. According to the agreement the Danish subsidiary – which had developed and used it’s own intangibles – would now have to pay royalties for the use of...
- Portugal vs “B Restructuring LDA”, February 2021, CAAD, Case No 255/2020-TB Restructuring LDA was a distributor within the E group. During FY 2014-2016 a number of manufacturing entities within the group terminated distribution agreements with B Restructuring LDA and subsequently entered into new Distribution Agreements, under similar terms, with another company of the...