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The family grows bigger – the definition of related parties got expanded

The recently adopted tax law changes significantly expand the definition of related parties. As of 2015 not only those companies will qualify as related parties which are connected in their ownership chain, but also those with an overlap in their management. As a result, the number of transactions where parties have to apply arm’s length pricing will increase. The new definition may, however, cause uncertainties as well.

The primarily objective of the so-called “transfer pricing” rules is to prevent the realization of tax benefits by applying manipulated pricing practice between affiliated entities. To this end, the tax laws require related parties to determine their tax base by applying arm’s-length prices, even if they use a different price in their transactions. More…