There are some circumstances in which a taxpayer will consider that an arm’s length price must be adjusted to account for government interventions such as price controls (even price cuts), interest rate controls, controls over payments for services or management fees, controls over the payment of royalties, subsidies to particular sectors, exchange control, anti- dumping duties, or exchange rate policy. As a general rule, these government interventions should be treated as conditions of the market in the particular country, and in the ordinary course they should be taken into account in evaluating the taxpayer’s transfer price in that market. The question then presented is whether in light of these conditions the transactions undertaken by the controlled parties are consistent with transactions between independent enterprises.
TPG2022 Chapter I paragraph 1.152
Category: D. Guidance for applying the arm’s length principle | Tag: Anti-dumping duties, Exchange controls, Government interventions, Government policies, Market condition
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- TPG2022 Chapter I paragraph 1.156Because independent enterprises might not engage in a transaction subject to government interventions, it is unclear how the arm’s length principle should apply. One possibility is to treat the payment as having been made between the associated enterprises, on the assumption that an...
- TPG2022 Chapter I paragraph 1.155A difficulty with this analysis is that often independent enterprises simply would not enter into a transaction in which payments were blocked. An independent enterprise might find itself in such an arrangement from time to time, most likely because the government interventions were...
- TPG2022 Chapter I paragraph 1.154A special problem arises when a country prevents or “blocks” the payment of an amount which is owed by one associated enterprise to another or which in an arm’s length arrangement would be charged by one associated enterprise to another. For example, exchange...
- TPG2022 Chapter I paragraph 1.153One issue that arises is determining the stage at which a price control affects the price of a product or service. Often the direct impact will be on the final price to the consumer, but there may nonetheless be an impact on prices...
- TPG2022 Chapter I paragraph 1.4Factors other than tax considerations may distort the conditions of commercial and financial relations established between associated enterprises. For example, such enterprises may be subject to conflicting governmental pressures (in the domestic as well as foreign country) relating to customs valuations, anti-dumping duties,...
Related Case Law
- Denmark vs EAC Invest A/S, October 2021, High Court, Case No SKM2021.705.OLRIn 2019, the Danish parent company of the group, EAC Invest A/S, had been granted a ruling by the tax tribunal that, in the period 2008-2011, due to, inter alia, quite exceptional circumstances involving currency restrictions in Venezuela, the parent company should not...