TPguidelines

Under the second circumstance discussed at paragraph 1.65, a second cumulative criterion is that “the actual structure practically impedes the tax administration from determining an appropriate transfer price.” If an appropriate transfer price (i.e. an arm’s length price that takes into account the comparability – including functional – analysis of both parties to the transaction or arrangement) can be arrived at in the circumstances of the case, irrespective of the fact that the transaction or arrangement may not be found between independent enterprises and that the tax administration might have doubts as to the commercial rationality of the taxpayer entering into the transaction or arrangement, the transaction or arrangement would not be disregarded under the second circumstance in paragraph 1.65. Otherwise, the tax administration may decide that this is a case for not recognising the transaction or arrangement under the second circumstance in paragraph 1.65.