TPG2022 Chapter IX paragraph 9.106

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Where a restructuring involves a transfer to a foreign associated enterprise of risks that were previously assumed by a taxpayer, it may be important to examine whether the transfer of risks only concerns the future risks that will arise from the post-restructuring activities or also the risks existing at the time of the restructuring as a result of pre-conversion activities, i.e. there is a cut-off issue. For instance, consider a situation in which a distributor was assuming bad debt risks which it will no longer assume after its being restructured as a “limited risk distributor”, and that it is being compared with a long-established “limited risk distributor” that never assumed bad debt risk. It may be important when comparing both situations to examine, based on the guidance in Section D. 1.2.1 of Chapter I, whether the “limited risk distributor” that results from a conversion still assumes the risks associated with bad debts that arose before the restructuring at the time it was full-fledged, or whether all the bad debt risks including those that existed at the time of the conversion were transferred.