TPG2022 Chapter IX paragraph 9.65

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In particular, in the case of the conversion of a full-fledged distributor into, for example, a limited risk distributor or commissionnaire, it may be important to examine whether the distributor has developed local marketing intangibles over the years prior to its being restructured and if so, what the nature and the value of these intangibles are, and whether they were transferred to an associated enterprise. Where such local intangibles are found to be in existence and to be transferred to a foreign associated enterprise, the arm’s length principle should apply to determine whether and if so how to compensate such a transfer, based on what would be agreed between independent parties in comparable circumstances. In this regard it is relevant to note that the transferor should receive arm’s length compensation (in addition to the arm’s length compensation for the transferred intangibles) when after the restructuring it continues to perform functions related to the development, enhancement, maintenance, protection or exploitation of the local intangible transferred (see Section B.2. 1 of Chapter VI). On the other hand, where such local intangibles are found to be in existence and to remain in the restructured entity, they should be taken into account in the functional analysis of the post-restructuring activities. They may accordingly influence the selection and application of the most appropriate transfer pricing method for the post-restructuring controlled transactions, in order that appropriate compensation can be determined.

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