West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-24 - Corporation Net Income Tax › Section 110-24-13d - Intercompany Transactions

Current through Register Vol. XLI, No. 28, July 12, 2024
13d.1. In general.
13d.1.a. Purpose. This section provides rules
				for reporting intercompany transactions of members of a combined reporting
				group in order to clearly reflect the taxable income (and tax liability) of the
				taxpayer members that is allocated or apportioned to West Virginia. The general
				rule is that business income from intercompany transactions (composed of both
				gains or losses) will be deferred in order to produce the effect of
				transactions between divisions of a single corporation in a manner similar to
				Title 26, Code of Federal Regulations, section 1.1502-13 (26 C. F. R. 1.1502-13
				or Treasury Regulation section 1.1502-13). West Virginia Code §
										11-24-13d(e)
13d.1.b. Conformity to Treasury Regulation
				section 1.1502-13. Intercompany transactions. Except as otherwise provided,
				this section incorporates Treasury Regulation section 1.1502-13, as amended
				through June 30, 2009, to the extent possible consistent with combined
				reporting principles to enable ease of administration and compliance. This
				section does not restate all the provisions of the federal regulation in full.
				However, the methodology adopted under the federal regulation applies except as
				otherwise provided in this section. Exceptions will arise due to the
				differences between the composition of the federal consolidated group and the
				combined reporting group, the requirements of West Virginia's allocation and
				apportionment provisions, jurisdictional limitations, and treatment of members
				of a combined reporting group as separate entities for many purposes under the
				W. Va. Code. Exceptions may also arise in those instances when Treasury
				Regulation section 1.1502-13 incorporates by reference provisions of the
				Internal Revenue Code to which West Virginia has not conformed. Unless
				explicitly provided otherwise, conformity to Treasury Regulation section
				1.1502-13 in no way implies conformity to any other regulation under section
				1502. of the Internal Revenue Code.
13d.1.c. Timing rules as a method of
				accounting. This section applies the provisions of Treasury Regulation section
				1.1502-13(a)(3), except for the reference to Treasury Regulation section
				1.1502-17. The rules apply to all members of the combined reporting
				group.
13d.1.d. Other Law. Other
				applicable law (including nonstatutory authorities) applies in addition to this
				section to the extent that this section does not exclude the application.
13d.1.d.1. Non-applicability of section 304
				of the Internal Revenue Code. As provided in Treasury Regulation section
				1.1502-80, section 304 of the Internal Revenue Code, to which West Virginia
				conforms pursuant to W. Va. Code §
											11-24-3,
				does not apply to any acquisition of stock of a corporation in an intercompany
				transaction occurring on or after January 1, 2009.
13d.1.d.2. Non-applicability of section
				163(e)(5) of the Internal Revenue Code. As provided in Treasury Regulation
				section 1.1502-80, section 163(e)(5) of the Internal Revenue Code, to which
				West Virginia conforms pursuant to W. Va. Code §
											11-24-3,
				does not apply to any intercompany obligation within the meaning of subsection
				13d.7. issued in a tax year beginning on or after January 1, 2009.
13d.1.d.3. Non-applicability of section 1031.
				of the Internal Revenue Code. As provided in Treasury Regulation section
				1.1502-80, section 1031. of the Internal Revenue Code, to which West Virginia
				conforms pursuant to W. Va. Code §
											11-24-3,
				does not apply to any intercompany transaction occurring in income years
				beginning on or after January 1, 2009.
13d.1.e. Sourcing. In the income year that
				intercompany items are taken into account, their source shall be determined as
				if the selling member (S) and the buying member (B) are divisions of a single
				corporation. Therefore, the intercompany items are treated as current
				apportionable business income and are apportioned to West Virginia in
				accordance with W. Va. Code §§
										11-24-1,
et seq
. West Virginia law does not conform to the federal
				sourcing rules provided or referenced in Treasury Regulation section 1.1502-13,
				with relation to worldwide unitary reporting and with relation to activity in a
				tax haven, as specified in W. Va. Code §§
										11-24-1,
et seq.
13d.1.e.1. Sales
				Factor.
13d.1.e.1.A. Sales attributable to
				intercompany items are not included in S's sales factor either in the year of
				the transaction or in the years in which the intercompany items are taken into
				account.
13d.1.e.1.B. Gross
				receipts from the sale generating B's corresponding item will be included in
				B's sales factor in the year of the sale if otherwise included under W. Va.
				Code §§
												11-24-1,
et seq.
, unless the gross receipts are excluded under an
				"other method of allocation and apportionment," as authorized by W. Va. Code
				§
												11-24-7(h).
13d.1.e.1.C. Considered sales under Treasury
				Regulation section 1.1502-13(d)(1)(ii) will be disregarded for purposes of the
				sales factor.
13d.1.e.2.
				Property factor.
13d.1.e.2.A. On the date of
				the intercompany transaction, the property transferred from S to B will be
				included in B's property factor at the original cost to S.
13d.1.e.2.B. Intercompany rent expense is not
				included in the property factor.
13d.1.e.2.C. Intercompany obligations shall
				not be included in the property factor.
13d.1.e.2.D. If S's intercompany item is
				accelerated as a result of S or B no longer being members of the same combined
				reporting group, the value of B's property acquired from S in an intercompany
				transaction will be adjusted immediately after the acceleration event to
				reflect B's original cost (the purchase price paid by B to S).
13d.1.e.2.E. Paragraphs 13d.1.e.2.A through
				13d.1.e.2.D. of this rule relating to the property factor apply regardless of
				whether an election is made under this section to treat an intercompany
				transaction on a separate entity basis.
13d.1.f. Overview. The principal provisions
				of this section that implement single entity treatment are the matching rule of
				subsection 13d.3. and the acceleration rule of subsection 13d.4. Under the
				matching rule, Seller (S) and Buyer (B) are generally treated as divisions of a
				single corporation for purposes of taking into account their items from
				intercompany transactions. The acceleration rule provides rules for taking the
				items into account if the effect of treating S and B as divisions cannot be
				achieved (for example, if S or B leave the combined reporting group or if the
				asset transferred in the intercompany transaction is converted to nonbusiness
				use). Intercompany items will be treated as current apportionable business
				income for the years) in which the item is taken into account. Subsection
				13d.2. provides definitions used in the application of this section. Subsection
				13d.5. provides simplifying rules for certain transactions. Subsections 13d.6.
				and 13d.7. provide additional rules for stock and obligations of members.
				Subsections 13d.8 and 13d.9 provide anti-avoidance rules and miscellaneous
				operating rules.