A global intercompany transaction
policy statement (a TP policy) sponsored by one or more MNE group senior management members (e.g., the chief financial officer, chief accounting officer, or chief tax officer) is an essential ingredient for an effective intercompany transaction
framework and is a best practice.
This results in an out-of-balance intercompany transaction
with potential tax complications.
For example, they may refuse to process intercompany transactions
that were not forecast, or they may book all activity in the period at the period-end rate, to mention two extremes.
The purpose of this paper is to discuss and illustrate parent/investor accounting for these intercompany transactions
when the parent/investor uses the full equity method, but does not consolidate.
In the recognition phase, any intercompany transaction
that could lead to an adjustment of income by the IRS or a foreign tax authority is considered to be an uncertain tax position.
The ALP for intercompany transactions
between controlled affiliates is a statutory requirement for proper tax compliance in the United States.
This uncertainty is compounded by the revenue authorities' increased scrutiny and sophistication in reviewing intercompany transactions
. Moreover, taxing authorities are implementing conflicting interpretations of the arm's length standard.
Tax administrators have increasing concerns that taxpayers are using intercompany transactions
to shift income from one taxing jurisdiction to another.
This result is intended to prevent consolidated groups from using intercompany transactions
to dispose of assets without recognition of gain that would be taxable at the corporate level.
In contrast to the single-entity approach taken under the consolidated intercompany transaction
Under the matching rule, the separate entity attributes of S's intercompany items (i.e., S's income, gain, deduction, and loss from an intercompany transaction
) and B's corresponding items (i.e., B's income, gain, deduction, and loss from an intercompany transaction
, or from property acquired in an intercompany transaction
) are redetermined to the extent necessary to produce the same effect on consolidated taxable income as if S and B were divisions of a single corporation, and the intercompany transaction
were a transaction between those divisions.
2d 100, that distortion of income was not a "condition precedent" to the Tax Commission requiring combined reporting in the "intercompany transaction