Ga. Comp. R. & Regs. R. 560-7-8-.07 - Shifting of Income
(1)
This section of the Act was enacted for the purpose of preventing diversion of
profits in an arbitrary manner between corporations and their stockholders or
between affiliated corporations. There has been a tendency on the part of some
corporations operating both within and without the State to form separate
corporations to engage in the several activities, all of which form a part of
the overall operation. If, for example, a manufacturing company operates in
Georgia it may sell its products to an affiliated selling company outside
Georgia at prices which may or may not result in a proper profit for
manufacturing the products. Or if a sales company operates within Georgia it
may buy products from a manufacturing affiliate outside Georgia at prices which
may or may not result in proper profit from selling activities. Some common
forms of diversion of income are:
(a) Sales
at more or less than fair value.
(b) Purchases at more or less than fair
value.
(c) Fixing profits in
advance by contract, such as a parent corporation, guaranteeing costs and
expenses of a subsidiary, plus a fixed fee, or percentage.
(d) Payment of unreasonable officers'
salaries, rents, royalties, interest, and other charges against
income.
(e) Billing a product to an
affiliate at factory cost. There are other methods by which affiliates not
dealing at arms length may distort or divert profits.
(2) When any method which distorts net income
among and between affiliates is used, the Commissioner will require the
consolidation of income of all such affiliates and then proceed to compute the
entire net income in accordance with the provisions in Section 92-3113, which
relates to apportionment of income within and without the State. The tax
imposed by this law shall apply to the correct apportioned income of all
affiliates as consolidated.
(3) The
Commissioner will have due regard for fair profits, and for prices which
products would ordinarily sell for between non-affiliates, and if it is found
that affiliates are in fact dealing at arms length, operating, buying and
selling, and otherwise dealing with each other as if they were not affiliated,
consolidation will not apply.
Notes
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