TPG2022 Chapter VIII paragraph 8.39

Category: C. Applying the arm’s length principle | Tag: , , , ,
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As indicated in paragraph 8.9, the economically relevant characteristics of the arrangement identified under the guidance in Section D of Chapter I may indicate that the actual transaction differs from the terms of the CCA purportedly agreed by the participants. For example, one or more of the claimed participants may not have any reasonable expectation of benefit from the CCA activity. Although in principle the smallness of a participant’s share of expected benefits is no bar to eligibility, if a participant that is performing all of the subject activity is expected to have only a small fraction of the overall expected benefits, it may be questioned whether the reality of the arrangements for that party is to pool resources and share risks or whether the appearance of sharing in mutual benefits has been constructed to obtain more favourable tax results. The existence of significant balancing payments arising from a material difference between the parties’ proportionate shares of contributions and benefits may also give rise to questions about whether mutual benefits exist or whether the arrangements should be accurately delineated, taking into account all the economically relevant characteristics, as a funding transaction.






Related Guidelines

  1. TPG2022 Chapter VIII paragraph 8.51The transfer pricing documentation standard set out in Chapter V requires reporting under the master file of important service arrangements and important agreements related to intangibles, including CCAs. The local file requires transactional information including a description of the transactions, the amounts of...
  2. TPG2022 Chapter VIII paragraph 8.35Balancing payments may be made by participants to “top up” the value of the contributions when their proportionate contributions are lower than their proportionate expected benefits. Such adjustments may be anticipated by the participants upon entering into the CCA, or may be the...
  3. TPG2022 Chapter VIII paragraph 8.14Because the concept of mutual benefit is fundamental to a CCA, it follows that a party may not be considered a participant if the party does not have a reasonable expectation that it will benefit from the objectives of the CCA activity itself...
  4. TPG2022 Chapter VIII paragraph 8.45The amount of a buy-in payment should be determined based upon the value (i.e. the arm’s length price) of the interest in the intangibles and/or tangible assets the new entrant obtains, taking into account the new entrant’s proportionate share of the overall expected...
  5. TPG2022 Chapter VIII paragraph 8.7In some cases CCAs can provide helpful simplification of multiple transactions (bearing in mind that the tax consequences of transactions are determined in accordance with applicable local laws). In a situation where associated enterprises both perform activities for other group members and simultaneously...
  6. TPG2022 Chapter VIII paragraph 8.43Any balancing payment should be treated as an addition to the contribution of the payor and as a reduction in the contribution of the recipient. As with contributions generally, the character and tax treatment of any balancing payments will be determined in accordance...
  7. TPG2022 Chapter VIII paragraph 8.53Over the duration of the CCA term, the following information could be useful: a) any change to the arrangement (e.g. in terms, participants, subject activity), and the consequences of such change b) a comparison between projections used to determine the share of expected...
  8. TPG2022 Chapter VIII paragraph 8.36Balancing payments may also be required by tax administrations where the value of a participant’s proportionate contributions of property or services at the time the contribution was made has been incorrectly determined, or where the participants’ proportionate expected benefits have been incorrectly assessed,...
  1. 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...
  2. 2017: ATO transfer pricing issues related to centralised operating modelsThe Practical Compliance Guideline (Guideline) sets out the Australian Taxation Office’s (ATO’s) compliance approach to transfer pricing issues related to the location and relocation of certain business activities and operating risks into a centralised operating model. The type of activities commonly centralised include...

Related Case Law

  1. US vs Xilinx Inc, May 27, 2009, Court of AppealIn a decision the IRS determined that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation. The United States Tax Court overruled the IRS, finding that in an arm’s-length...
  2. US vs Altera Corp, June 2020, Supreme Court – review denied, Case no 19-1009Altera’s request for a Supreme Court review of the decision issued by the US Court of Appeal in June 2019 has been denied. A case cannot, as a matter of right, be appealed to the U.S. Supreme Court. A party seeking to appeal...
  3. Spain vs EPSON IBÉRICA S.A.U., Feb 2018, High Court, Case No 314/2016EPSON IBÉRICA S.A.U. had deducted the full employee pension costs of a CEO that had worked both for the HQ in the Netherlands and the local Spanish Company. The tax authorities issued an assessment where 90% of the pension costs had been disallowed...
  4. European Commission vs. Amazon and Luxembourg, May 2021, State Aid – European General Court, Case No T-816/17 and T-318/18In 2017 the European Commission concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation the Commission concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by...