©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES...
-
Upload
bernice-mcgee -
Category
Documents
-
view
221 -
download
0
description
Transcript of ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES...
![Page 1: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/1.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES
Héctor Silva
Meeting - BreakfastApril 21, 2010
![Page 2: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/2.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
•Up to 45-60 days of balance – reasonable as compared with unrelated transactions
•Yearly expenses = $12,000,000
A R
= 1.5 – 2.0 MillionA P
2
INTERCOMPANY BALANCES
![Page 3: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/3.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.3
WHEN APPLYING SAFE HARBOR;INTERCOMPANY BALANCE < 60 DAYS
Intercompany account is denominated in US Dollars
Account Receivable Account Payable
− Exchange gains/losses Taxable/deductible
− Creates an inflationary adjustment
− Exchange gains/losses Taxable/deductible *
− Creates an inflationary adjustment
* Exchange losses are deemed interests and subject to the 3/1 thin capitalization rules.
Any exchange and/or inflationary adjustments is transferred through out the service fee under the Safer Harbor option.
![Page 4: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/4.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.4
WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE< 60 DAYS
Intercompany account is denominated in MX Pesos
Account Receivable Account Payable
− No exchange differences
−No inflation adjustment is allowed
− No exchange differences
−Creates an inflationary adjustment
Exchange differences are recognized directly by the parent company in the US books.
![Page 5: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/5.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.5
WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE > 60 DAYS
Intercompany account is denominated in US Dollars
Account Receivable Account Payable
− Could be considered as a deemed dividend for US tax purposes under section 956 tax code (US advise is recommended)
• Exchange differences taxable/deductible
• Inflationary adjustment
− Exchange losses deductible (deemed interest for 3/1 this capitalization rules)
• Inflationary adjustment
![Page 6: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/6.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.6
WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE > 60 DAYS
Intercompany account is denominated in MX Pesos
Account Receivable Account Payable
• Deemed dividend
• No Exchange differences
• No inflationary adjustments
• No exchange differences
• Inflationary adjustment
![Page 7: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/7.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.7
WHEN APPLYING TRANSFER PRICING STUDY;INTERCOMPANY BALANCE < 60 DAYS
Intercompany account is denominated in US Dollars
Account Receivable Account Payable
• Exchange differences are taxable/deductible
• Inflationary effects
• Exchange differences are taxable/deductible (deemed interest for 3/1 thin capitalization rule)
• Inflationary effects
![Page 8: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/8.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.7
WHEN APPLYING TRANSFER PRICING STUDY;INTERCOMPANY BALANCE < 60 DAYS
Intercompany account is denominated in MX Pesos
Account Receivable Account Payable
• No exchange differences
• No Inflationary adjustment is allowed
• No Exchange differences
• Inflationary adjustment
![Page 9: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/9.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.8
WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE > 60 DAYS
Intercompany account is denominated in US Dollars
Account Receivable Account Payable
• Mark –up need to be adjusted to eliminate non-arm’s length aging
• Exchange differences and inflationary effects are reimbursed
• Deemed dividend for US tax purposes
• Mark-up need to be adjusted to eliminate non-arm’s length aging
• Exchange differences and inflationary effects are reimbursed
• See 3/1 thin capitalization effect
Be ware of the adjustment not to create a taxable income with a possible disallowed deduction
![Page 10: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/10.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.8
WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE > 60 DAYS
Intercompany account is denominated in MX Pesos
Account Receivable Account Payable
• Mark –up need to be adjusted to eliminate non-arm’s length aging
• Inflationary effects are reimbursed
• Deemed dividend for US tax purposes
• Mark-up need to be adjusted to eliminate non-arm’s length aging
• Inflationary effects are reimbursed
![Page 11: ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062401/5a4d1b3f7f8b9ab0599a014d/html5/thumbnails/11.jpg)
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
INTERCOMPANY BALANCES
Reducing intercompany balances
Accounts Receivable – Distribute a dividend - Measure US tax implications- Identify Flat Tax impact
Accounts Payable – Capitalization of liabilities
9