The health contingency has knocked on the door worldwide and forced many companies to specialize or generalize activities, make the most of synergies, redistribute benefits, modify cost structure, process outsourcing, process optimization, etc.
If changes are made within the company or the business group to which they belong, the company results in a change in its assets, functions, and risks, we are in the presence of a business restructuring.
According to OECD guidelines, company restructuring refers to the cross-border reorganization of commercial or financial relationships between associated companies, including the termination or substantial renegotiation of pre-existing agreements and, in consequence, whether accepted or imposed conditions that differ from those that would be agreed by independent companies exists. The profits of that company should be taxed accordingly.
Before any change within the group in relation to functions, assets, and risks, it is important to take into account the current transfer pricing matter legislation which states that; transactions carried out between companies that are related parties must be entered into as if they were agreed with independent third parties in comparable transactions.
In case these changes are not agreed as with independent parties in comparable operations, the tax law empowers the tax authorities to apply the corresponding adjustments and to submit the imposition of profits obtained from the said business reorganization.
Therefore, it is relevant that if intercompany policies are modified or some types of intra-group restructuring fall into place, they comply with the arm’s length principle or “Arm’s Length” and, all in all, they have a valid and sustainable business reason to carry out the reorganization of functions, assets or risks, in which they demonstrate that benefits are flowing to the entity that carries out the said restructuring. Any change that occurs in the economic, commercial, and operational relations, should take into consideration what is mentioned in the tax legislation.
Written by Carlos Ramírez Gómez, Transfer pricing partner, LawBiz Consulting Group