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GC 8: Insufficient amount receivable by person
or “Rules for fair payment in business deals and their tax implications”
You could also call this:

“Tax adjustments for underpriced transactions in related business deals”

You need to know about a rule that applies when you’re involved in a special kind of business deal called a transfer pricing arrangement. This rule helps make sure everyone pays the right amount of tax.

Here’s how it works:

If you’re in this kind of deal and the tax office has to adjust the amount you’re supposed to pay or receive, they’ll look at other deals you’ve made with the same person. If they find that you’ve paid less than you should have for something else you bought from them, they’ll take a closer look.

This rule applies if the thing you bought is similar to what’s in the first deal, or if the price of the first deal was set based on what you paid for the second thing.

If this happens, the tax office will treat the amount you paid in the second deal as if you had paid the proper price. They’ll use this new amount when they work out how much tax you need to pay.

The proper price, also called the arm’s length amount, is decided using a method described in section GC 13.

Remember, this rule is here to make sure everyone pays their fair share of tax, even in complicated business deals.

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Next up: GC 10: Compensating arrangement: person receiving more than arm’s length amount

or “Receiving more than fair market value in a related transaction”
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Part G Avoidance and non-market transactions
Market value substituted

GC 9Compensating arrangement: person paying less than arm’s length amount

  1. This section applies when—

  2. a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
    1. an adjustment is made for an income year under either—
      1. section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
        1. section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement; and
        2. an amount of consideration payable by the taxpayer in the same income year, or in the preceding or next income year, for an acquisition (the compensating acquisition arrangement) from the same person is less than an arm’s length amount; and
          1. either—
            1. the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating acquisition arrangement; or
              1. the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration payable under the compensating acquisition arrangement.

              2. For the purposes of calculating the taxpayer’s income tax liability, the amount paid by them in the compensating acquisition arrangement is treated for the corresponding tax year as an amount equal to the arm’s length amount determined under section GC 13.

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