One important issue with such before-and-after comparisons is that a comparison of the profits from the post-restructuring controlled transactions with the profits made in controlled transactions prior to the restructuring would not suffice given Article 9 of the OECD Model Tax Convention provides for a comparison to be made with uncontrolled transactions. Comparisons of a taxpayer’s controlled transactions with other controlled transactions are irrelevant to the application of the arm’s length principle and therefore should not be used by a tax administration as the basis for a transfer pricing adjustment or by a taxpayer to support its transfer pricing policy.
TPG2022 Chapter IX paragraph 9.118
Category: D. Comparing the pre- and post-restructuring situations | Tag: Before-and-after comparison, Business restructuring, Comparison of controlled transactions with other controlled transactions, Pre- and Post Restructuring Result
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- TPG2022 Chapter IX paragraph 9.125There will also be cases where before-and-after comparisons can be made because the transactions prior to the restructuring were not controlled, for instance where the restructuring follows an acquisition, and where adjustments can reliably be made to account for the differences between the...
- TPG2022 Chapter IX paragraph 9.121The analysis of the business before and after the restructuring may reveal that while some functions, assets and risks were transferred, other functions may still be carried out by the “stripped†entity. Typically, as part of the restructuring the entity may have been...
- TPG2022 Chapter IX paragraph 9.120That being said, in business restructurings, before-and-after comparisons could play a role in understanding the restructuring itself and could be part of a before-and-after comparability (including functional) analysis to understand the changes that accounted for the changes in the allocation of profit/loss amongst...
- TPG2022 Chapter IX paragraph 9.124Based on these findings, it can be concluded that Company A continues to perform the same functions and assume the same risks as before the restructuring took place. In particular, Company A continues to have the capability and actually performs control functions in...
- TPG2022 Chapter IX paragraph 9.123Then a restructuring takes place. Legal ownership of the trademarks, trade names and other intangibles represented by the brand is transferred by Company A to a newly set up affiliate, Company Z in Country Z in exchange for a lump sum payment. After...
- TPG2022 Chapter IX paragraph 9.122For example, an MNE manufactures and distributes products the value of which is not determined by the technical features of the products, but rather by consumer recognition of the brand. The MNE wants to differentiate itself from its competitors through the development of...
Related Case Law
- Spain vs COLGATE PALMOLIVE HOLDING SCPA, February 2018, High Court, Case No 568/2014According to Colgate Palmolive, following a restructuring, the local group company in Spain was changed from being a “fully fledged distributor†responsible for all areas of the distribution process to being a “limited risk distributor” (it only performs certain functions). A newly established...
- Netherlands vs “Agri B.V.”, September 2022, Court of Appeal, Case No AWB-16_5664 (ECLI:NL:RBNHO:2022:9062)“Agri B.V.” is a Dutch subsidiary in an international group processing agricultural products. Following a restructuring in 2009 “Agri B.V.” had declared a profit of € 35 million, including € 2 million in exit profits. In an assessment issued by the tax authorities...
- Germany vs “X-BR GMBH”, March 2023, Finanzgericht, Case No 10 K 310/19 (BFH Pending – I R 43/23)Z is the head of a globally operating group. At group level it was decided to discontinue production at subsidiary “X-BR GMBH” at location A and in future to carry out production as far as possible at location B by group company Y....