The Resource Additional adjustments to be made in the wake of a transfer pricing adjustment

Additional adjustments to be made in the wake of a transfer pricing adjustment

Label
Additional adjustments to be made in the wake of a transfer pricing adjustment
Title
Additional adjustments to be made in the wake of a transfer pricing adjustment
Creator
Subject
Language
eng
Summary
Host country reports prepared by practitioners in 12 separate jurisdictions. Facts: H is a business entity formed under the laws of Host Country and is engaged in the assembly and sale of computers in Host Country. F, a party related to H, is a business entity formed under the laws of Foreign Country and is engaged in the production of hard drives in Foreign Country. Both H and F are considered "corporations" for purposes of Host Country's income tax law and there is no income tax treaty between Host Country and Foreign Country. H purchases computer components from various parties, including hard drives from F. H also makes loans to F from time to time. In 2003 H purchased hard drives from F for u$100x per carton (where u$ = units of Host Country currency). In 2006 the tax authorities of Host Country determined that the fair market value of the hard drives was actually u$80x per carton, and H agreed to that determination. In 2003 H also had a loan outstanding to F on which it accrued interest income of u$1000x. In 2006 the tax authorities of Host Country determined that arm's length interest on that loan was u$1300x, and H agreed to that determination. Questions: 1) With respect to the transfer pricing adjustment pertaining to the amount paid for the hard drives in 2003, what additional adjustments will be made in the wake of that adjustment? In particular, how will the additional payment of u$20x per carton made by H to F be treated? Assume for this purpose, in the alternative, that: (i) F wholly owns H; (ii) H wholly owns F; and (iii) a third corporation owns 95 percent of H and 100 percent of F (with the remaining stock in H held by an unrelated individual resident in Host Country). Do the tax authorities of Host Country have options as to how the additional payment of u$20x per carton will be treated? Does H?; 2) With respect to the transfer pricing adjustment pertaining to the interest income accrued by H in 2003, perform the same analysis as in 1 above. In particular, how will the difference between the amount actually accrued (u$1000x) and the arm's length amount (u$1300x) be treated? Could withholding tax be imposed under Host Country law on an amount deemed paid but not actually paid? For example, if F is deemed to have paid additional interest of u$300x to H and then H is deemed to have paid a dividend of u$300x to F, could the deemed dividend be subject to withholding tax under Host Country law?; 3) How would the answers to the questions set forth above differ if there were an income tax treaty between Host Country and Foreign Country and the Competent Authorities of the two countries agreed on the transfer pricing adjustments?
Citation source
In: Tax management international forum. - London. - Vol. 27 (2006),
http://library.link/vocab/creatorName
Liebman, H.M.
Language note
English
http://library.link/vocab/subjectName
  • transfer pricing
  • transfer pricing adjustment
  • secondary adjustment
  • tax treaty
  • MAP
  • Arbitration Convention
  • arm's length principle
Label
Additional adjustments to be made in the wake of a transfer pricing adjustment
Instantiates
Publication
Contents
Belgium p. 3-5; Canada p. 6-10; Denmark p. 11-13; France p. 13-15; Germany p. 16-20; Ireland p. 21-23; Japan p. 24-25; Netherlands p. 25-30; Spain p. 31-35; Switzerland p. 36-38; United Kingdom p. 39-41; United States p. 42-48
Label
Additional adjustments to be made in the wake of a transfer pricing adjustment
Publication
Contents
Belgium p. 3-5; Canada p. 6-10; Denmark p. 11-13; France p. 13-15; Germany p. 16-20; Ireland p. 21-23; Japan p. 24-25; Netherlands p. 25-30; Spain p. 31-35; Switzerland p. 36-38; United Kingdom p. 39-41; United States p. 42-48

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