§ 48-7-28.3 - Expenses from transactions with related members
O.C.G.A. 48-7-28.3 (2010)
48-7-28.3. Expenses from transactions with related members
(a) As used in this Code section, the term:
(1) "Comprehensive income tax treaty" means a convention or agreement, entered into by the United States and approved by Congress, with a foreign government for the allocation of all categories of income subject to taxation or the withholding of tax on interest, dividends, and royalties for the prevention of double taxation of the respective nations' residents and the sharing of information.
(2) "Corporation" means:
(A) A corporation incorporated under the laws of this state or incorporated or organized under the laws of any other state, territory, or nation; or
(B) A limited liability company treated as a corporation for federal income tax purposes or any other person treated as a corporation for federal income tax purposes. A limited liability company which is disregarded as a separate entity for income tax purposes shall also be disregarded as a separate entity for purposes of this Code section.
(3) "Foreign nation" means an established sovereign government that is recognized as such by the United States Department of State.
(4) "Intangible expenses and costs" means expenses, losses, and costs directly or indirectly for, related to, or in connection with the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, or disposition of intangible property, to the extent such amounts are allowed as deductions or costs in determining taxable income before net operating loss deduction and special deductions for the taxable year under the Internal Revenue Code of 1986. The term includes but is not limited to:
(A) Royalty, patent, technical, and copyright fees;
(B) Licensing fees; and
(C) Other similar expenses and costs.
(5) "Intangible property" includes but is not limited to patents, patent applications, trade names, trademarks, service marks, copyrights, mask words, trade secrets, and similar types of intangible assets.
(6) "Interest expenses and costs" includes but is not limited to amounts directly or indirectly allowed as deductions under Section 163 of the Internal Revenue Code of 1986 for purposes of determining taxable income under the Internal Revenue Code of 1986 to the extent such expenses and costs are directly or indirectly for, related to, or in connection with the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, or disposition of intangible property.
(7) "Related person" means:
(A) A stockholder who is an individual or a member of the stockholder's family enumerated in Section 318 of the Internal Revenue Code of 1986 if the stockholder and the members of the stockholder's family own, directly or indirectly, beneficially or constructively, in the aggregate at least 50 percent of the value of the taxpayer's outstanding stock;
(B) A stockholder, or a stockholder's partnerships, estate, trusts, or corporations, if the stockholder and the stockholder's partnerships, estate, trusts, and corporations own, directly or indirectly, beneficially or constructively, in the aggregate at least 50 percent of the value of the taxpayer's outstanding stock; or
(C) A corporation, or a person related to the corporation in a manner that would require an attribution of stock from the corporation to the person or from the person to the corporation under the attribution rules of Section 318 of the Internal Revenue Code of 1986, if the taxpayer owns, directly or indirectly, beneficially or constructively, at least 50 percent of the value of the corporation's outstanding stock.
(D) The attribution rules of Section 318 of the Internal Revenue Code of 1986 apply for purposes of determining whether the ownership requirements in subparagraphs (A) through (C) of this paragraph have been met.
(E) A limited liability company treated as a partnership for federal income tax purposes shall be considered a partnership for purposes of this paragraph and paragraph (8) of this subsection.
(8) "Related member" means a person, with respect to the taxpayer during all or any portion of the tax year:
(A) That is a related person;
(B) That is a component member as defined in Section 1563(b) of the Internal Revenue Code of 1986;
(C) To or from whom there would be required an attribution of stock ownership in accordance with Section 1563(e) of the Internal Revenue Code of 1986; or
(D) That, notwithstanding its form of organization, bears the same relationship to the taxpayer as a person described in subparagraphs (A) through (C) of this paragraph.
(9) "Valid business purpose" means one or more business purposes, other than the avoidance or reduction of taxation, which alone or in combination constitute the primary motivation for some business activity or transaction, which activity or transaction changes in a meaningful way, apart from tax effects, the economic position of the taxpayer. The economic position of the taxpayer includes an increase in the market share of the taxpayer, or the entry by the taxpayer into new business markets.
(b) For purposes of computing its Georgia taxable net income under Code Sections 48-7-21 and 48-7-27, a taxpayer shall add back otherwise deductible interest expenses and costs and intangible expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related members. Such expenses and costs shall be added before the income is apportioned or allocated as provided by Code Section 48-7-31.
(c) The commissioner shall have the authority to reverse in whole or in part the adjustments required in subsection (b) of this Code section when the taxpayer and the commissioner agree in writing to the application or use of an alternative method of apportionment under subparagraph (d)(2)(E) of Code Section 48-7-31, Code Section 48-7-35, or Code Section 48-7-31.1. Nothing in this Code section shall be construed to limit or negate the commissioner's authority otherwise to enter into agreements and compromises otherwise allowed by law.
(d)(1) For purposes of this subsection, the term:
(A) "Allocated or apportioned, or both" does not mean the amount of income that is subject to allocation or apportionment, or both. Rather it means the amount that is arrived at after applying the allocation and apportionment rules of a state as defined in subparagraph (B) of this paragraph. A tax or the portion of a tax, which is or would be imposed regardless of the amount of the income, shall not be considered to be a tax on or measured by the income of the related member.
(B) "State" means a state in the United States of America, including the District of Columbia, but does not include those states under whose laws the taxpayer files with the related member, or the related member files with another related member, a combined income tax report or return, a consolidated income tax report or return, or any other report or return where such report or return is due because of the imposition of a tax on, or measured by, income and where such combined income tax report or return, consolidated income tax report or return, or other report or return results in the elimination of the tax effects from transactions directly or indirectly between the taxpayer and the related member.
(2) The amount of the adjustment required by subsection (b) of this Code section shall be reduced, but not below zero, to the extent the corresponding interest expenses and costs and intangible expenses and costs:
(A) Are received as income in an arm's length transaction by the related member; and
(B) Such income is allocated or apportioned, or both, to and taxed by Georgia or another state that imposes a tax on or measured by the income of the related member.
(3) In claiming the exception allowed by this subsection, the taxpayer shall disclose on its return, with respect to the related member, the name of the related member, the federal identification number of the related member, the name of each state, the amount of the interest expenses and costs and intangible expenses and costs allocated or apportioned to and taxed by each state for such related member, and such other information as the commissioner may prescribe.
(e)(1) The adjustment required by subsection (b) of this Code section shall be reduced, but not below zero, if and to the extent:
(A) The interest expenses and costs and intangible expenses and costs are paid, accrued, or incurred to a related member domiciled in a foreign nation which has in force a comprehensive income tax treaty with the United States;
(B) The transaction giving rise to the interest expenses and costs and intangible expenses and costs has a valid business purpose; and
(C) The amounts of such interest expenses and costs and intangible expenses and costs were determined at arm's length rates.
(2) In claiming the exception allowed by this subsection, the taxpayer shall disclose on its return:
(A) The name and federal identification number of the related member;
(B) The amount of the interest expenses and costs and intangible expenses and costs;
(C) The country of domicile of the related member; and
(D) Such other information as the commissioner may prescribe.
(f) The adjustment required in subsection (b) of this Code section shall not apply to the portion of interest expenses and costs and intangible expenses and costs that the taxpayer establishes by a preponderance of the evidence that meets both of the following:
(1) The related member during the same taxable year directly or indirectly paid, accrued, or incurred such portion to a person that is not a related member; and
(2) The transaction giving rise to the interest expenses and costs and intangible expenses and costs has a valid business purpose.
(g) Nothing in this Code section shall require a taxpayer to add to its Georgia taxable net income more than once any amount of interest expenses and costs and intangible expenses and costs that the taxpayer pays, accrues, or incurs to a related member.
(h) Nothing in this Code section shall be construed to limit or negate the commissioner's authority to make adjustments under Code Section 48-7-58.
(i) The adjustment required by this Code section shall apply to a corporation that files a separate return with Georgia and to the separate taxable income computation of each member of a Georgia consolidated return.
(j) In addition to other penalties imposed by this title, the penalty for failure to make the adjustment required by this Code section shall be 10 percent of the additional tax that results because of this Code section. The commissioner may waive this penalty pursuant to the provisions of Code Section 48-2-43.
(k) The commissioner is authorized to prescribe forms and promulgate rules and regulations deemed necessary in order to effectuate this Code section.