Financial accounting may provide the starting point for determining the profit to be split in the absence of harmonised tax accounting standards. The use of other financial data (e.g. cost accounting) should be permitted where such accounts exist, are reliable, auditable and sufficiently transactional. In this context, product-line income statements or divisional accounts may prove to be the most useful accounting records.
TPG2022 Chapter II paragraph 2.156
Category: C. Transactional profit split method | Tag: Determining profit to be split, Financial data, Profit split method, Segregated financial data, Transfer pricing methods
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- TPG2022 Chapter II paragraph 2.157However, except in circumstances where the total activities of each of the parties are the subject of the profit split, the financial data will need to be segregated and allocations made in accordance with the accurately delineated transaction(s) so that the profits relating...
- TPG2022 Chapter II paragraph 2.129It may also be relevant to consider industry practices. For instance, if information is available that independent parties do commonly use profit splitting approaches in similar situations, careful consideration should be given to whether the transactional profit split method may be the most...
- TPG2022 Chapter VI paragraph 6.149Transactional profit split methods may have application in connection with the sale of full rights in intangibles. As with other applications of the transactional profit split method, a full functional analysis that considers the functions performed, risks assumed and assets used by each...
- TPG2022 Chapter II paragraph 2.176Similarly, where cost-based profit splitting factors are used that are based on data extracted from the taxpayers’ profit and loss accounts, it may be necessary to draw up transactional accounts that identify those expenses that are related to the controlled transaction at hand...
- TPG2022 Chapter II paragraph 2.175For instance, where an asset-based profit splitting factor is used, it may be based on data extracted from the balance sheets of the parties to the transaction. It will often be the case that not all the assets of the taxpayers relate to...
- TPG2022 Chapter II Annex II example 1151. The success of an electronics product is linked to the innovative technological design both of its electronic processes and of its major component. That component is designed and manufactured by associated company A; is transferred to associated company B which designs and manufactures...
- TPG2022 Chapter II paragraph 2.155Where the relevant profits to be split are comprised of profits of two or more associated enterprises, the relevant financial data of the parties to the transaction to which a transactional profit split is applied need to be put on a common basis...
- TPG2022 Chapter II paragraph 2.177Internal data may also be helpful where the profit splitting factor is based on a cost accounting system, e.g. employee costs related to some aspects of the transaction, or time spent by a certain group of employees on certain tasks, etc....
- EU report on financial crimes, tax evasion and tax avoidanceIn March 2018 a special EU committee on financial crimes, tax evasion and tax avoidance (TAX3) was established. Now, one year later, The EU Parliament has approved a controversial report from the committee. According to the report close to 40 % of MNEs’...
- A COORDINATED APPROACH TO TRANSFER PRICING CONTROLS WITHIN THE EU (2018)“Think international – act international – audit international“. Multinational enterprises (MNEs) primarily engage in cross-border activities and invest internationally while the competences of national tax jurisdictions remain limited to the national territory as a matter of principle. To face up to the challenges...
Related Case Law
- Czech Republic vs. M.V., April 2018, Supreme Administrative Court , Case No 3 Afs 105/2017 – 22The reason for the adjustment of the tax base was, among other things, the finding that M.V.sold on 4 January 2010 all the stock of goods of the range of garden supplies to AGROTECHNIKA Vaněk s.r.o. (“Agrotechnika”) at an 80% discount on the...
- Luxembourg vs L SARL, January 2020, Luxembourg Administrative Tribunal, Case No 41800In 2013, L SARL requested in writing an “advance tax agreement” regarding the tax treatment of Mandatory Redeemable Preference Shares (MRPS) which generated a preferred dividend for its sole shareholder. L SARL wanted confirmation that the MRPS would be characterised as debt and...
- Indonesia vs P.T. Sanken Electric Indonesia Ltd, February 2016, Tax Court, Case No. Put.68357/PP/M.IA/15/2016P.T. Sanken Electric Indonesia Ltd. – an Indonesian subsidiary of Sanken Electric Co., Ltd. Japan – paid royalties to its Japanese parent for use of IP. The royalty payment was calculated based on external sales and therefore did not include sales of products...
- Spain vs MAHOU (SAN MIGUEL) S.A., December 2021, Audiencia Nacional, Case No SAN 5537/2021 – ECLI:ES:AN:2021:5537The Mahou (SAN MIGUEL) S.A Group is active in brewing and sale of beers. Penibética de cervezas y bebidas SL and Andaluza de cervezas y bebidas SL are wholly owned by Cervezas Alhambra SL, which again is owned by MAHOU (SAN MIGUEL) S.A....