• Compensating adjustments

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    To avoid double taxation, the Tax Office may make adjustments in the assessment of another taxpayer to compensate for a transfer pricing adjustment. A compensatory adjustment may be required, for instance, where a transfer pricing adjustment is made to decrease the amount of a royalty payment made to a related company. In this case, a compensatory adjustment could be made to reduce the amount included in the assessable income of the related company as a result of the royalty payment.

    As with the usual operation of the transfer pricing rules, where one CFC's notional assessable income or notional allowable deductions are adjusted, the Tax Office may make a compensating adjustment to:

    • a taxpayer's allowable deductions or assessable income
    • another CFC's notional assessable income or notional allowable deductions or
    • the attributable income of a transferor trust estate.

    Similarly, compensating adjustments may be made to the attributable income of a CFC when the transfer pricing rules have been applied to:

    • a taxpayer's allowable deductions or assessable income or
    • the attributable income of a transferor trust estate.
    Last modified: 05 Dec 2006QC 17522