Intercompany Transactions Research Articles

Transfer Pricing End-of-Year Adjustments in the Netherlands

Year-end adjustments are commonly used by Dutch corporate taxpayers to ensure that their intercompany transactions are priced in accordance with the arm’s length principle. This article explores the Dutch domestic rules, practices, and insights concerning these adjustments.The article is part of a special issue of the International Transfer Pricing Journal on transfer pricing end-of-year adjustments. The other articles include the General Report and contributions on Belgium, France, Germany, Ireland, Italy, Korea, Spain, the United Kingdom and the United States.

Transfer Pricing State Audits on the Upswing

While the Internal Revenue Service has long scrutinized cross-border intercompany transactions, state tax authorities are increasingly focusing on state transfer pricing. This trend poses new challenges for company groups operating in multiple states. In states with separate tax reporting, each entity within an affiliated group is treated as a separate taxpayer for state income tax purposes, which can lead to profit shifting by manipulating transfer prices between affiliated entities in different states. In this regard, state tax authorities are taking a more proactive approach to examine and audit state transfer pricing positions. Recent significant state transfer pricing case law highlights the importance of preparing and maintaining adequate documentation to support intercompany transactions during state audits. Specifically, preparing an adequate transfer pricing study can be crucial for risk management by minimizing potential challenges from state tax authorities.

A survey on supply chain ontologies

Nowadays, the business area cannot be sustainable and efficient without the presence of the Supply Chain. However, Supply Chain Management is by no means an easy task. Experts, in their effort to achieve the most efficient Supply Chain Management, have turned their attention to the management of knowledge related to supply chains. Thus, they model the concepts and the semantic relationships between them in Supply Chain Networks and create conceptual models and ontologies. In this paper, a survey of the existing ontologies in this field is carried out, with the aim of creating a new ontology of the Supply Chain that will unify its structural elements and lead to the integration of all supply systems. For this purpose, 22 ontological models from different supply systems, from over 90 sources, have been collected, briefly presented and commented on. These models, although being an intersection in the effort to model business operations and delineate a good basis for businesses to engage in Logistics processes, they lack an adequate formulation of appropriate semantics and terminology to describe all the different functions of the Supply Chain. Consequently, this lack inevitably leads to incompatible interpretations and uses of the knowledge that results from intercompany transactions.

Gain on Intercompany Transactions– Fixed Assets

Gain on Intercompany Transactions– Fixed Assets

Gain on Intercompany Transactions – Fixed Assets

Gain on Intercompany Transactions – Fixed Assets

Transfer Pricing in the Automotive Supplier Industry

Automotive suppliers are characterized by a centralized IP ownership, centralized provision of services, and a global presence of local plants that sell and invoice manufactured components directly to their customers’ local production facilities. All this makes cross-border intercompany transactions and the respective transfer pricing of automotive suppliers with respect to intangibles, manufacturing and services very challenging.

Understanding Consolidated Returns

Section 1501 allows all of the members of an affiliated group of corporations to elect to file a consolidated return. A consolidated return permits the includible members of an affiliated group of corporations to combine their incomes into a single return. The detailed rules for filing consolidated returns are found in regulations promulgated pursuant to a broad delegation of authority in section 1502 of the Internal Revenue Code. In general, the regulations reflect a “single entity” approach that attempts to treat the several members of a consolidated group in the same manner as divisions of a single corporation. This article explains the most important general principles governing consolidated returns and is intended to provide an overview of the consolidated return regulations for lawyers who are generally unfamiliar with the detailed rules. Among other topics, the article explains (1) the rules governing eligibility to file a consolidated return, (2) the computation of consolidated taxable income, including relevant limitations on the use of net operating losses, (3) intercompany transactions and distributions, (4) stock basis adjustments, and (5) earnings and profits calculations. It explains both the rules in the consolidated return regulations and the differences from the rules that otherwise would govern had the corporations not elected to file a consolidated return.

Estimating a COVID-19 Crisis Effect Using AI Techniques

In December 2020, the OECD released guidance on certain aspects of transfer pricing in view of the disruptive situation created by the COVID-19 pandemic. The comparability analysis was addressed therein as one of the main focus areas with regard to benchmarking and the collection of other quantitative evidence usually employed by corporate taxpayers in their transfer pricing documentation. As the burden of proof remains with the taxpayers and the question which quantitative approaches they could adopt has become highly relevant, this article provides some concrete examples for industry practitioners and other interested stakeholders demonstrating which kind of statistical methods and artificial intelligence-supported quantitative approaches can be employed to deliver robust empirical evidence ex ante for taxpayers’ compliance with the arm’s length principle in their intercompany transactions during a crisis situation like the COVID-19 pandemic and beyond.

Performance management during crisis periods – How inter-company transactions can positively influence the business model

Abstract The current paper explores how inter-company arrangements within a group can positively influence companies’ performance management strategies. In current globalization era, taxation system transcends the countries boarders, being a tool used both for eliminating double taxation for an income, but also as leverage in modern commercial wars (e.g. import taxes between USA and China). Thus, it can be considered that taxation knowledge provides a competitive advantage to all companies that are considering it as a business tool, in an ethical manner. The necessity of such an analysis appeared during the second part of the pandemic crisis, when we noticed that companies part of a group managed to perform during the crisis period due to cash allocation within the group. This is a multi-disciplinary study, being obtained by combination of the following subjects: (i) performance management, (ii) international taxation, (iii) transfer pricing and (iv) game theory. The purpose of this paper is to demonstrate that, with a strategic tax mechanism, companies can restart their business in the post-pandemic period with a competitive advantage. Strategy is the key and everyone who have such a key will stay in the market game.

Updated E-Tax Guide on Singapore Transfer Pricing Guidelines

On 10 August 2021, the Inland Revenue Authority of Singapore published the sixth edition of the Singapore Transfer Pricing Guidelines with key updates that are compulsory, largely “compliance” in nature, and may have a significant impact on taxpayers with intercompany transactions. The article discusses in detail all the key updates and shares the authors’ views on some of these changes.

The Complexities of VAT Grouping

This article deals with developments in 2021 in respect of the impact of VAT grouping on the VAT treatment of intercompany transactions. The main development in 2021 was the ECJ decision in Danske Bank in which it was ruled that a transaction between a Danish VAT group and a Swedish branch was in scope of VAT. The decision makes it more important to determine whether a VAT fixed establishment is in place and whether a VAT group is in place. The Italian tax authorities appear to be going even one step further by also treating transactions between a local fixed establishment and a non-EU VAT group as being in scope of VAT. The implementation of a VAT grouping regime in France also broadens the implications of Danske Bank. A pending case at the Dutch Supreme Court may change this, as it is being questioned whether the current limitations under the concept of VAT grouping may form a breach of fundamental EU principles on freedom of establishment, but proceedings have not been in the taxpayer’s favour so far.

Consortium Capabilities for Enterprise Blockchain Success

Enterprise blockchain projects have great promise. They can cut costs and promote efficiency through disintermediation, increase transparency for tracking intercompany transactions, expand knowledge through consortia databases, and improve workflows through shared business processes. Despite its potential, blockchain technology has failed to produce promised benefits for enter-prise networks. While the underlying technology has advanced rapidly, managerial capabilities needed to form and manage blockchain consortia have lagged and as a result, few consortia have succeeded. This paper reviews the extant literature on blockchain consortia and provides a frame-work that identifies 1) foundational conditions that precede effective consortium formation, 2) capabilities required for effective consortium functioning and evolution, and 3) partner and ecosystem-level outcomes associated with successful blockchain projects.

SKEMA TRANSFER PRICING UNTUK PENGALIHAN LABA

More than 60% of world transactions used a transfer pricing scheme. Transfer pricing for tax avoidance is not in accordance with domestic Indonesian tax rules. This study aim to generate understanding about transfer pricing concept, determine transfer pricing risk factors, identify transfer pricing schemes, and explain transfer pricing risk management. Descriptive analysis method based on secondary data and literature studies applied in this research. This research shows that transfer pricing should be based on the arm’s length principle. Factors that determine transfer pricing risks are inter-company transactions, tax rates, and foreign ownership. Transfer pricing can be implemented in inter-company transactions schemes related to sales, intangible asset, loan and services through one or a combination of several types of inter-company transactions. Transfer pricing risk management can be carried out through law enforcement, access of information agreement, and development of a transfer pricing risk-based monitoring system. The Directorate General of Taxes needs to pay attention to taxpayers who have affiliated transactions, lower tax rates, and foreign ownership in monitoring the risk of transfer pricing. Business groups also need to to fulfill the arm's length principle in the transfer pricing scheme in order to comply with the regulation. Keywords: business groups, inter-company transactions, profit shifting, tax avoidance, transfer pricing

Customs Value and Transfer Pricing: WCO and ICC Solutions to Be Adopted by Customs Authorities

Intercompany transactions represent nowadays more than 60% of the total market. Businesses dealing with cross-border trade need to comply with the Transfer Pricing (TP) rules for income tax purposes and are obliged to reconcile transfer pricing adjustment with customs value. Such a reconciliation under the traditional customs approach is really burdensome. Just recently, World Customs Organization (WCO) took note of this issue and invited all customs authorities to apply the International Chamber of Commerce (ICC) solutions to ease the customs relation and speed the international trade. The modern approach implies to integrate the TP documentation with a customs dedicated section, establish a transparent discussion with the customs offices and finalize an agreement. It will be the best way to set an effective TP/customs procedure, in any country impacted by the application of the TP policy, to apply the best reconciliation mitigating the administrative costs and neutralizing any risk of sanction in the global marketplace.

Curbing Transfer Pricing in Tanzania: A Critical Evaluation of the Income Tax Act

Tax is an important tool for any country’s development. The collection of tax depends on the effectiveness of the tax legislation of a country, among other things. The taxation of domestic income poses fewer problems when it is dealt with through local legislation. The problems are likely to increase when dealing with tax with foreign elements. This is apparent in the taxation of associated multinational corporations operating across countries, where goods and services are transferred through transfer pricing. The intercompany transactions may offer transfer pricing manipulation with a view to maximizing profit. In response to this concern, the arm’s length principle is used to curb transfer pricing manipulation. This article examines transfer pricing provisions as provided for in the Tanzania Income Tax Act and identifies legal gaps that are likely to impede the application of the arm’s length principle. It calls for amendment of the act to address existing concerns.

Tax and Nontax Incentives in Income Shifting: Evidence from Shadow Insurers

ABSTRACTUsing the shadow insurance setting, we study the interplay between tax and nontax incentives in income shifting. Shadow insurance involves intercompany transactions designed to help firms meet regulatory capital requirements. However, prior to the Tax Cuts and Jobs Act of 2017 (TCJA), foreign-owned life insurance firms could save taxes by using shadow insurance to shift U.S. profits to tax havens. Consistent with expectations, we find that while nontax incentives appear to be the dominant factor behind firms' use of shadow insurance, tax considerations also played a role for certain firms. We also find that shadow insurance is associated with lower liquid asset holdings and increased credit risk. Overall, our results suggest that taxes were an important incentive for foreign-owned life insurance firms to use shadow insurance pre-TCJA. Moreover, in this setting, nontax considerations appeared to have motivated U.S.-owned firms' use of tax havens.

Analysis of Accounts Receivable Aging Using Variable Order Markov Model

An accurate prediction on near-future cash flows plays an important role for a company to attenuate the shortage risk of cash flow by preparing a plan for future investment in advance. Unfortunately, there exists a high level of uncertainty in the types of transactions that occur in the form of receivables in inter-company transactions, unlike other types of transactions, thereby making the prediction of cash flows difficult. In this study, we analyze the trend of cash flow related to account receivables that may arise between firms, by using a stochastic approach. In particular, we utilize Variable Order Markov (VOM) model to predict how future cash flows will change based on cash flow history. As a result of this study, we show that the average accuracy of the VOM model increases about 12.5% or more compared with that of other existing techniques.

The Importance of Lawyers in International Tax Policy Design and Development: An Exploration and Extension of the Legal-Economic Literature

The advent of the global digital economy has increased opportunities for aggressive tax planning by multinational enterprises (‘MNEs’). Governments are increasingly faced with the competing objectives of remaining internationally competitive and encouraging foreign investment while also protecting their national tax bases. Two key trends have had a significant impact on the international tax debate. First, over the past three decades, the rise of MNEs and the prominence – and dominance – of inter-company trade as a proportion of global trade has fundamentally shifted the influence of individual governments’ tax policies. Second, even though corporate tax policy has traditionally been a field dominated by economists, there is now a shift towards ‘politicisation’ of the debate. The focus of this article is on the importance of legal practitioners and scholars in assisting with meaningful reform at the intersection of these two trends – and examining alternative theoretical approaches to tax policy. In doing so, this article also bridges two disciplines by combining legal analysis with linear optimisation modelling (to simulate a tax-minimising MNE’s behavioural responses to both existing and proposed tax legislation). Ultimately, it is hoped that this research will present a platform for further discussion on the tax treatment of cross-border intercompany transactions, and facilitate the development of improvements to both the tax law design and drafting.

Does Stock Price Crash of Firms in the Same Business Group Cause Stock Price Crash in Other Member Firm? Evidence from Korea

ABSTRACT This article examines the spillover of stock price crash within business groups. Using Korean business group data, we find that the crash risk of a firm is positively associated with the crash risk of other member firms in the same business group. We also find that crashes spread but do not arise simultaneously across firms within a business group. Further analyses reveal that the documented association is stronger in firms with more inter-company transactions and those with lower market-to-book ratios. Our article contributes to the literature by suggesting that the consequence of opportunistic behaviors of controlling shareholders (i.e., stock crash of a member firm) spills over within business groups.

Cost reduction struggles in sister companies

Purpose- Cost is always in top ranking issues from corporations to small enterprises. In order to accomplish cost reduction goals, the structure of cost must be well defined. What does cost reduction really mean, and why close follow up for cost items are needed should be the main questions of cost projects. This paper discusses the cost reduction concept, and its techniques, and develops a point of view for the sister companies. Intercompany transactions have many opportunities to utilize, and sister companies can be benefited from common functions. Methodology- A systematic literature review is performed in this study in order to present the concept itself, and a conceptual type of study is followed for discussing cost reduction methodologies in sister companies. Findings- According to findings of the study, especially for manufacturing sister companies, there are some opportunities for cost reduction as taking the advantage of organization structure, re-organizing the support functions, volume impact in fixed costs, increased bargaining power in purchasing function, and peer learning behaviors in quality and R&D activities. Conclusion- Sister companies gain the favor of intercompany transactions in cost reduction issues, and are creating synergy for the total success.