Compilation of Rules and Regulations of the State of Georgia › Department 560 - RULES OF DEPARTMENT OF REVENUE › Chapter 560-7 - INCOME TAX DIVISION › Subject 560-7-3 - SUBSTANTIVE REGULATIONS › Rule 560-7-3-.05 - Related Member Interest Expenses and Costs; and Intangible Expenses and Costs

Current through Rules and Regulations filed through June 27, 2024
(1)
Purpose.
The purpose of this regulation is to provide guidance
				with regard to the administration of O.C.G.A. §
									48-7-28.3, which requires the taxpayer to add back certain related member interest
				expenses and costs, and intangible expenses and costs. For purposes of this
				regulation, such expenses shall be referred to as related member
				costs.
(2)
General
				Guidelines.
The Department requires all direct and indirect related
				member costs to be added back to income prior to claiming an exception to the
				addback adjustment. Any person that paid, accrued, or incurred such related
				member costs must complete Form IT-Addback.
(3)
Direct and
Indirect
				Expenses.
If an expense that is paid, accrued, or incurred by one
				related member is related, directly or indirectly, to a related member cost
				paid, accrued, or incurred, directly or indirectly, by or for any other related
				member, it is an indirect related member cost and as such is required to be
				added back as provided in O.C.G.A. §
									48-7-28.3.
				For example:
(a) Corporations B and C are
				related members with respect to Corporation A. Corporation A is a Georgia
				taxpayer that purchases products from Corporation B. Corporation B licenses
				intangible property from Corporation C and as such makes related member cost
				payments to Corporation C. To the extent the related member costs which
				Corporation B pays to Corporation C are directly or indirectly included in the
				costs of the products or services Corporation A purchases from Corporation B,
				the direct related member costs of Corporation B are considered to be indirect
				related member costs of Corporation A. As such, for purposes of O.C.G.A. §
										48-7-28.3, Corporation A is deemed to indirectly pay related member costs to Corporation C
				that are subject to the addback adjustment.
(b) Corporations B and C are related members
				with respect to Corporation A. Corporation A is a Georgia taxpayer that pays a
				management fee to Corporation B. Corporation B licenses intangible property
				from Corporation C and as such makes related member cost payments to
				Corporation C. To the extent the related member costs which Corporation B pays
				to Corporation C are directly or indirectly included in the costs of the
				management services Corporation A purchases from Corporation B, the direct
				related member costs of Corporation B are considered to be indirect related
				member costs of Corporation A. As such, for purposes of O.C.G.A. §
										48-7-28.3, Corporation A is deemed to indirectly pay related member costs to Corporation C
				that are subject to the addback adjustment.
(c) Corporation B is a related member with
				respect to Corporation A. Corporation A acquires intangible property from
				Corporation B, thus giving Corporation A a cost basis in the intangible
				property. The related amortization amount that may be permitted as a deduction
				pursuant to Internal Revenue Code § 197 would constitute a recovery of
				"costs directly or indirectly for, related to, or in connection with the direct
				or indirect acquisition [or]. ownership. of intangible property," as defined in
				O.C.G.A. §
										48-7-28.3(a)(4).
				Such amortization expense would therefore be considered an indirect related
				member cost of Corporation A subject to the addback adjustment.