It may be necessary to evaluate the transactions separately to determine whether they each satisfy the arm’s length principle. If the transactions are to be analysed together, care should be taken in selecting comparable transactions and regard had to the discussion at paragraphs 3.9-3.12. The terms of set-offs relating to international transactions between associated enterprises may not be fully consistent with those relating to purely domestic transactions between independent enterprises because of the differences in tax treatment of the set-off under different national tax systems or differences in the treatment of the payment under a bilateral tax treaty. For example, withholding tax would complicate a set-off of royalties against sales receipts.
TPG2022 Chapter III paragraph 3.16
Category: A. Performing a comparability analysis | Tag: Comparability analysis, Internal set-offs, Netting transactions, Tax treatment
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- TPG2022 Chapter III paragraph 3.13An intentional set-off is one that associated enterprises incorporate knowingly into the terms of the controlled transactions. It occurs when one associated enterprise has provided a benefit to another associated enterprise within the group that is balanced to some degree by different benefits...
- TPG2022 Chapter III paragraph 3.14Intentional set-offs may vary in size and complexity. Such set-offs may range from a simple balance of two transactions (such as a favourable selling price for manufactured goods in return for a favourable purchase price for the raw material used in producing the...
- TPG2022 Chapter I paragraph 1.41For a discussion of the relevance of these factors for the application of particular pricing methods, see the consideration of those methods in Chapter II....
- TPG2022 Chapter III paragraph 3.15Recognition of intentional set-offs does not change the fundamental requirement that for tax purposes the transfer prices for controlled transactions must be consistent with the arm’s length principle. It would be a good practice for taxpayers to disclose the existence of set-offs intentionally...
- TPG2022 Chapter I paragraph 1.39The second phase in which economically relevant characteristics or comparability factors are used in a transfer pricing analysis relates to the process set out in Chapter III of making comparisons between the controlled transactions and uncontrolled transactions in order to determine an arm’s...
- TPG2022 Chapter I paragraph 1.7It is important to put the issue of comparability into perspective in order to emphasise the need for an approach that is balanced in terms of, on the one hand, its reliability and, on the other, the burden it creates for taxpayers and...
- TPG2022 Chapter I paragraph 1.47Where there is doubt as to what transaction was agreed between the associated enterprises, it is necessary to take into account all the relevant evidence from the economically relevant characteristics of the transaction. In doing so one must bear in mind that the...
- TPG2022 Chapter III paragraph 3.56In some cases, not all comparable transactions examined will have a relatively equal degree of comparability. Where it is possible to determine that some uncontrolled transactions have a lesser degree of comparability than others, they should be eliminated....
- German draft-legislation on application of the arm’s length principle to cross-border relocation of functionsOn 5 July 2022, the Federal Ministry of Finance in Germany published draft legislation regarding application of the arm’s length principle to cross-border relocation of functions. According to the general provisions A function is a business activity that consists of a grouping of...
- EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...
Related Case Law
- France vs SA Exel Industries, March 2023, CAA de PARIS, Case No 21PA06438SA Exel Industries marketed its products abroad through subsidiaries or independent agents, depending on the territory. In Brazil, India, Argentina, Russia and Portugal it sold its products through subsidiaries under either a buy/sell distributor agreement or a commissionaire agreement. In Iran, Turkey and...
- Italy vs Burckert Contromatic Italiana S.p.A., November 2021, Corte di Cassazione, Sez. 5 Num. 1417 Anno 2022Burkert Contromatic Italiana s.p.a. is engaged in sale and services of fluid control systems. The italian company is a subsidiary of the German Bürkert Group. Following a tax audit, the Italian tax authorities issued a notice of assessment for FY 2007 on the...
- Italy vs Menfi Industria s.p.a., December 2022, Supreme Court, Cases No 11252/2023Menfi Industria s.p.a. is a manufacturer of household goods – appliances, crockery, stainless steel items. Following an audit the tax authorities served Menfi Industria a notice of assessment for FY 2008. According to the tax authorities the company had sold products to another...
- Colombia vs Carbones El Tesoro S.A., September 2021, Administrative Court, Case No. 22352At issue is the selection of the most appropriate transfer pricing method for sale of coal mined by Carbones El Tesoro S.A. in Colombia to its related party abroad, Glencore International AG. Carbones El Tesoro S.A. had determined the transfer price by application...