Connecticut Administrative Code › Title 12 - Taxation › 226a - Corporation Business Tax Adjustments by the Commissioner under Section 12-226a › Section 12-226a-1 - Adjustments by commissioner

Current through July 10, 2024
(a)
In
			 general.
All that is necessary in order for the Commissioner to make
			 adjustments under section
			 12-226a
			 of the general statutes is an agreement, arrangement or understanding between
			 the company and another person that, whether by inadvertence or design, results
			 in an improper or inaccurate reflection of income. The Commissioner is not
			 required to establish improper accounting; fraudulent, colorable, or sham
			 transactions; or arrangements designed to reduce or avoid tax by shifting or
			 distorting income, deductions or capital. Nor is the Commissioner required to
			 establish that the agreement, arrangement or understanding is unlawful or not
			 legally binding upon the parties thereto. The Commissioner shall, however,
			 examine whether the terms of such agreements, arrangements or understandings
			 are consistent with the economic substance of the underlying transactions and
			 the actual conduct of the parties. Said section
			 12-226a
			 requires the Commissioner to adopt a regulation that sets forth standards for
			 taking the actions that are authorized under section
			 12-226a.
			 This regulation sets forth those standards.
(b)
Transactions at more or less than a
			 fair price with related persons.
(1)
			 Section
			 12-226a
			 of the general statutes authorizes the Commissioner to make adjustments where a
			 company has entered into a transaction with a related person at more or less
			 than a fair price which, but for such agreement, arrangement, or understanding,
			 might have been paid or received therefor, and there is a significant deviation
			 between the amount actually paid or received and the amount which, but for such
			 agreement, arrangement, or understanding, might have been paid or received. The
			 standard that the Commissioner adopts under this subsection of this regulation
			 is arm's-length consideration, as defined in subdivision (4) of subsection (g)
			 of this regulation. Adjustments made by the Commissioner under section
			 12-226a
			 to reflect arm's-length consideration have no effect on other Connecticut taxes
			 (e.g., sales and use taxes, real estate conveyance tax, etc.) where the amount
			 paid or received- not the amount which, but for such agreement, arrangement, or
			 understanding, might have been paid or received-is the measure of the
			 tax.
(2) The following
			 subparagraphs are by way of example and not of limitation.
(A) Transfers of tangible property. Where one
			 person sells or otherwise disposes of tangible property to a related person at
			 other than an arm's-length price, the Commissioner may make proper adjustments
			 to reflect arm's-length consideration for that property.
(B) Loans and advances. Where one person
			 makes a bona fide loan or advance directly or indirectly to, or otherwise
			 becomes a creditor of, a related person, and either charges no interest, or
			 charges interest at a rate which is not equal to an arm's-length rate of
			 interest with respect to the loan or advance, the Commissioner may make proper
			 adjustments to reflect an arm's-length rate of interest for that loan or
			 advance.
(C) Services. Where one
			 person performs marketing, managerial, administrative, technical, or other
			 services for the benefit of, or on behalf of, a related person either without
			 charge, or at a charge which is not equal to an arm's-length charge, the
			 Commissioner may make proper adjustments to reflect an arm's-length charge for
			 such services. However, a parent corporation providing supervisory services
			 (also known as stewardship or overseeing functions) to a subsidiary need not
			 charge the subsidiary for those services, which are regarded as providing the
			 parent corporation with a benefit relating to the conservation and protection
			 of its investment. (This is due to the fact that a parent corporation often
			 coordinates and oversees major policy decisions and sets strategic direction
			 for its subsidiaries.) A parent corporation is required to make an arm's-length
			 charge only for managerial services that would have provided the subsidiary
			 with a benefit had they been provided by a third party.
(D) Use of tangible property. Where
			 possession, use or occupancy of tangible property owned or leased by one person
			 is transferred by lease or other arrangement to a related person either without
			 charge or at a charge which is not equal to an arm's-length rental charge, the
			 Commissioner may make appropriate adjustments to reflect an arm's-length rental
			 charge.
(E) Transfer or use of
			 intangible property. Where intangible property or an interest therein is
			 transferred, sold, assigned, loaned or otherwise made available in any manner
			 by one person to a related person for other than arm's-length consideration for
			 such property or its use, the Commissioner may make appropriate adjustments to
			 reflect an arm's-length consideration for such property or its use.