mit adjustments by the tax authority even where there is no intent to avoid or evade tax. [10] of prices is generally made by adjusting taxable income of all involved related parties within the jurisdiction, as well as adjusting any withholding or other taxes imposed on parties outside the jurisdiction. Such adjustments generally are made after filing of tax returns. For example, if Bigco US charges Bigco Germany for a machine, either the US or German tax authorities may adjust the price upon examination of the respective tax return. Following an adjustment, the taxpayer generally is allowed (at least by the adjusting government) to make payments to reflect the adjusted pricesles require that the tax authorities consider actual transactions between parties, and permit adjustment only to actual transactions. [11] Multiple transactions may be aggregated or tested separately, and testing may use multiple year data. In addition, transactions whose economic substance differs materially from their form may be recharacterized under the laws of many systems to follow the economic substance. »S length standardall systems require that prices be tested using an« arm's length » standard. [13] Under this approach, a price is considered appropriate if it is within a range of prices that would be charged by independent parties dealing at arm «s length. This is generally defined as a price that an independent buyer would pay an independent seller for an identical item under identical terms and conditions, where neither is under any compulsion to act.are clear practical difficulties in implementing the arm »s length standard. For items other than goods, there are rarely identical items. Terms of sale may vary from transaction to transaction. Market and other conditions vary geographically or over time. Some systems give a preference to certain transactional methods over other methods for testing prices.addition, most systems recognize that an arm «s length price may not be a particular price point but rather a range of prices. Some systems provide measures for evaluating whether a price within such range is considered arm »s length, such as theinterquartile range used in US regulations. Significant deviation among points in the range may indicate lack of reliability of data. [12] Reliability is generally considered to be improved by use of multiple year datales provide standards for when unrelated party prices, transactions, profitability or other items are considered sufficiently comparable in testing related party items. Such standards typically require that data used in comparisons be reliable and that the means used to compare produce a reliable result. The US and OECD rules require that reliable adjustments must be made for all differences (if any) between related party items and purported comparables that could materially affect the condition being examined. Where such reliable adjustments cannot be made, the reliability of the comparison is in doubt. Comparability of tested prices with uncontrolled prices is generally considered enhanced by use of multiple data. Transactions not undertaken in the ordinary course of business generally are not considered to be comparable to those taken in the ordinary course of business. Among the factors that must be considered in determining comparability are:
the nature of the property or services provided between the parties,
unctional an...
