TPG1979 Chapter I Paragraph 22

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Even if such an arrangement is in principle acceptable, the question which has to be asked in all cases, however, is whether the benefits do in fact balance each other over an appropriate period to the extent claimed. It may well be necessary for the tax authority to analyse the arrangement and the transactions in order to satisfy itself of this and the final judgement will then depend on a reasonably acceptable assessment of what would be an arm’s length price for all the relevant transactions. It should also be remembered that provisions regarding set-off between related parties in international transactions may not be fully comparable with those regarding set-offs between domestic enterprises because of the differences in the tax treatment of the set-off under different national tax systems or differences in the treatment of the payment under double taxation agreements. For example, withholding tax would complicate a set-off of royalties against sales receipts.






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