Abnormal relations.
Yes, we’ve all got them. Sometimes they even come to stay for Christmas. But your barmy relatives are not the subject of this blog.
No.
The subject is the change the OECD wants to make to Prevent the artificial avoidance of permanent establishment status – a highly relevant issue for companies thinking about tax and corporate social responsibility.
Let them explain:
“…transfers of intangibles and other mobile assets for less than full value, the over-capitalisation of lowly taxed group companies and from contractual allocations of risk to low-tax environments in transactions that would be unlikely to occur between unrelated parties.”
So tax law shouldn’t allow for an internal transaction between companies in a group that would be unlikely to happen between unrelated companies.
“Transactions that would be unlikely to occur between unrelated parties”
Think about it. The phrase has quite a bite.
“Unlikely to occur between unrelated parties” – maybe it’s not that different to you and your relations. After all, your dyspeptic uncle, crotchety aunty and geeky cousin wouldn’t be coming to stay over the festive season if they weren’t your kith and kin.
The implications for companies could be significant: setting up complex tax structures that rely on transfers between companies which wouldn’t ordinarily be related could become an extended family nightmare, if the OECD have their way.
Note: This blog addresses issues raised by OECD’s proposed Action 7. Action 7 is scheduled to be completed by September 2015. For more on Corporate Citizenship’s views on tax see our paper Tax as a Corporate Responsibility Issue