Page 8 - Trusts & International tax class slides
P. 8
INTERNATIONAL TAXATION
Suggested solution (without the application of section 31)
• The result of this transaction is that the bulk of the
profit is carried over to the country with the lower tax
rate, resulting in tax savings for company X, as well as
the group as a whole. The same effect could have been
obtained if company Y sold trading stock to company X
at a price higher than market value, resulting in
company X getting a tax deduction for an expense,
which is much higher than market value.
• From this example it is clear how easy it would be for
connected parties to manipulate prices, for the
reduction of tax liabilities. Let’s do the same example,
this time applying section 31.
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