560-7-8-.07 Shifting of Income.

(1) This section of the Act was enacted for the purpose of preventing diversion of profits in an arbitrary manner between corporations and their stockholders or between affiliated corporations. There has been a tendency on the part of some corporations operating both within and without the State to form separate corporations to engage in the several activities, all of which form a part of the overall operation. If, for example, a manufacturing company operates in Georgia it may sell its products to an affiliated selling company outside Georgia at prices which may or may not result in a proper profit for manufacturing the products. Or if a sales company operates within Georgia it may buy products from a manufacturing affiliate outside Georgia at prices which may or may not result in proper profit from selling activities. Some common forms of diversion of income are: (a) Sales at more or less than fair value. (b) Purchases at more or less than fair value. (c) Fixing profits in advance by contract, such as a parent corporation, guaranteeing costs and expenses of a subsidiary, plus a fixed fee, or percentage. (d) Payment of unreasonable officers' salaries, rents, royalties, interest, and other charges against income. (e) Billing a product to an affiliate at factory cost. There are other methods by which affiliates not dealing at arms length may distort or divert profits. (2) When any method which distorts net income among and between affiliates is used, the Commissioner will require the consolidation of income of all such affiliates and then proceed to compute the entire net income in accordance with the provisions in Section 92-3113, which relates to apportionment of income within and without the State. The tax imposed by this law shall apply to the correct apportioned income of all affiliates as consolidated. (3) The Commissioner will have due regard for fair profits, and for prices which products would ordinarily sell for between non-affiliates, and if it is found that affiliates are in fact dealing at arms length, operating, buying and selling, and otherwise dealing with each other as if they were not affiliated, consolidation will not apply. Authority: Ga. Code Ann. Secs. 92-3005, 92-3006, 92-8405, 92-8406, 92-8409, 92-8427. History. Original Rule entitled "Shifting of Income" adopted. F. and eff. June 30, 1965.