Under the guidance in this section, the transaction should not be recognised. S1 is treated as not purchasing insurance and its profits are not reduced by the payment to S2; S2 is treated as not issuing insurance and therefore not being liable for any claim.
TPG2022 Chapter I paragraph 1.147
Category: D. Guidance for applying the arm’s length principle | Tag: Delineation, Disregarding the transaction, Example, Example - commercially irrational transaction, Non-recognition and re-characterisation, Recognition of actual transaction, Substance over form
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- TPG2022 Chapter I paragraph 1.148Company S1 conducts research activities to develop intangibles that it uses to create new products that it can produce and sell. It agrees to transfer to an associated company, Company S2, unlimited rights to all future intangibles which may arise from its future...
- TPG2022 Chapter I paragraph 1.141Every effort should be made to determine pricing for the actual transaction as accurately delineated under the arm’s length principle. The various tools and methods available to tax administrations and taxpayers to do so are set out in the following chapters of these...
- TPG2022 Chapter I paragraph 1.143The key question in the analysis is whether the actual transaction possesses the commercial rationality of arrangements that would be agreed between unrelated parties under comparable economic circumstances, not whether the same transaction can be observed between independent parties. The non-recognition of a...
- TPG2022 Chapter I paragraph 1.144The structure that for transfer pricing purposes, replaces that actually adopted by the taxpayers should comport as closely as possible with the facts of the actual transaction undertaken whilst achieving a commercially rational expected result that would have enabled the parties to come...
- TPG2022 Chapter I paragraph 1.142This section sets out circumstances in which the transaction between the parties as accurately delineated can be disregarded for transfer pricing purposes. Because non-recognition can be contentious and a source of double taxation, every effort should be made to determine the actual nature...
- TPG2022 Chapter I paragraph 1.140In performing the analysis, the actual transaction between the parties will have been deduced from written contracts and the conduct of the parties. Formal conditions recognised in contracts will have been clarified and supplemented by analysis of the conduct of the parties and...
- TPG2022 Chapter I paragraph 1.146Company S1 carries on a manufacturing business that involves holding substantial inventory and a significant investment in plant and machinery. It owns commercial property situated in an area prone to increasingly frequent flooding in recent years. Third-party insurers experience significant uncertainty over the...
- TPG2022 Chapter I paragraph 1.145The criterion for non-recognition may be illustrated by the following examples....
- Guidance for Tax Administrations on the Application of Guidance on Hard-to-Value IntangiblesA new report from the OECD contains guidance for tax administration on the application of the approach to hard-to-value intangibles (HTVI), under BEPS Action 8. This new guidance present the principles that should underlie the application of the HTVI approach by tax administration,...
- Guidance on the attribution of profits to permanent establishments 2008On 17 July 2008, the OECD Council approved the release the Report on the Attribution of Profits to Permanent Establishments. The Report includes a preface and four Parts. Part I sets out general considerations for attributing profits to permanent establishments, regardless of the...
Related Case Law
- Germany vs OHG, November 2023, Bundesverfassungsgericht, Case No 2 BvR 1079/20A domestic general partnership (OHG) was the sole shareholder of an Italian corporation (A). OHG had unsecured interest bearing claims against A. During the years of the dispute, the partnership waived part of its claims against A in return for a debtor warrant....
- Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021The issue in the Danish beneficial ownership cases of NetApp Denmark ApS and TDC A/S was whether the companies were obliged to withhold dividend tax on distributions to foreign parent companies. The first case – NetApp Denmark ApS – concerned two dividend distributions...
- Poland vs “OLD-GAAR”, May 2004, Constitutional Court, K 4/03On 17 February 2003, the President of the Polish Supreme Administrative Court and the Ombudsman requested the Constitutional Court to declare that Article 24b par. 1 of the Tax Ordinance of 29 August 1997 – by giving the tax authorities and fiscal control...
- Uganda vs East African Breweries International Ltd. July 2020, Tax Appeals Tribunal, Case no. 14 of 2017East African Breweries International Ltd (applicant) is a wholly owned subsidiary of East African Breweries Limited, and is incorporated in Kenya. East African Breweries International Ltd was involved in developing the markets of the companies in countries that did not have manufacturing operations....