CA Rahul Bhatia
Business restructuring refers to the cross-border re-organisation of the commercial or financial relations between associated enterprises, including the termination or substantial renegotiation of existing arrangements.
Relationships with third parties (e.g. suppliers, sub-contractors, customers, etc.) may cause/ affect restructuring. Business restructurings may often involve centralisation of intangibles, risks, or functions with the profit potential attached to them. Typical examples of restructuring include:
Business restructuring have been an essential part of the activities of the multi-nationals (“MNC”s) to execute efficient ways of doing business so as to:
However, some tax experts and tax authorites have expressed concerns that in addition to restructuring businesses to get supply chain efficiencies, some tax payers may have restructured the businesses in a way that reduces the overall tax costs of the MNC without providing adequate compensation to different participating entities thereby leading to a loss of tax base of the countries involved.
A Chapter IX on business restructuring was introduced in Organization for Economic Cooperation and Development (“OECD”) Transfer Pricing (“TP”) Guidelines in the year 2010, titled “Transfer Pricing Aspects of Business Restructurings”, to lay down the broad guidelines to identify and deal with business restructurings performed by some MNCs primarily to avoid tax.
In 2016, Working Party 6 of the Committee on Fiscal affairs, set up by the OECD, agreed to certain changes to Chapter IX to conform to the recent changes prompted by 2015 BEPS initiatives pertaining to :
This conformed version of Chapter IX would replace the 2010 version in a consolidated version of the Guidelines.