Assume the arrangement is restructured and the taxpayer now operates as a so-called “toll-manufacturer” and “limited risk distributor”. As part of the restructuring, a foreign associated enterprise is established that acquires various intangibles from various affiliates including the taxpayer. Further to the restructuring, raw materials are to be acquired by the foreign associated enterprise, put in consignment in the premises of the taxpayer for manufacturing in exchange for a manufacturing fee. The stock of finished products will belong to the foreign associated enterprise and be acquired by the taxpayer for immediate re-sale to third party customers (i.e. the taxpayer will only purchase the finished products once it has concluded a sale with a customer). Under this new business model, the foreign associated enterprise contractually assumes the inventory risks that were previously borne by the taxpayer, and meets the requirements of control over the risk and financial capacity to assume the risk ... Read more

Assume a taxpayer, which is a member of an MNE group, used to operate as a “full-fledged” manufacturer and distributor. According to the pre-restructuring business model, the taxpayer purchased raw materials, manufactured finished products using tangible property and intangibles that belonged to it or were rented/licensed to it, performed marketing and distribution functions and sold the finished products to third party customers. In doing so, the taxpayer assumed a series of risks such as inventory risks, bad debt risks and market risks ... Read more

Business restructurings can involve the transfer of tangible assets (e.g. equipment) by a restructured entity to a foreign associated enterprise. One common issue relates to the valuation of inventories that are transferred upon the conversion by a restructured manufacturer or distributor to a foreign associated enterprise (e.g. a principal), where the latter takes title to the inventories as from the implementation of the new business model and supply chain arrangements ... Read more

Sections E. 1 to E.3 below contain a discussion of some typical transfers that can arise in business restructurings: transfers of tangible assets, of intangibles and rights in intangibles, and of activities (ongoing concern) ... Read more