Why?
because he saves tax in this way,
and the son hasn't income that he can deduct a payment from, so
in this way, the father is not acting on the base of arm's length rules.
No, he should treat his son renting the apartment as having to pay
a lease payment for that.
If he doesn't do so, there's an issue.
>> And why do they have to interact with each other on this at arm's length basis?
>> Well if you don't do so, then you are manipulating the tax,
which would we due on the basis of an ordinary economic arm's length situation.
And by the doctor having his having a wife that he pays 50 instead of 20.
It's also lowering his taxes, because, you know, he manipulates the tax system.
Let's assume that you're a pharmaceuticals company, small company,
family owned and operated.
And you do a major invention, just by accident.
You don't spend a lot of money on research and development.
You do this particular event,
you are going to get a patent which is extremely valuable.
Well, would it be okay to give that patent to be used to give a license
to a family member, so the family member, so the family member will able
to amass a fortune while paying very little royalty-wise?
No.
The person should pay a royalty which is equivalent to
the amount he would pay if he would get the license from an unrelated party.
So the problem with transfer pricing is, you could redeem as if the two parties
negotiating are not related, and they are related, and that's where the issue is.
Therefore, a few days ago,
I saw on the television a documentary on international tax avoidance.
And there were complaints in the documentary about fake
royalties being paid in cross-border situations within a single multinational,
which is nonsense, of course.
When they're, when the two parties are related, they gotta determine
the level of the royalty payment as if the two parties were unrelated.
So, irrespective of whether the party that made
the invention incurred a lot of cost, that doesn't matter.
The question is, how much would a third party have paid?
And if the third party would have paid a huge amount of royalty, then the related
company should pay a huge amount of royalty to the company holding the patent.
You cannot call it a fake royalty.
So this illustrated that a very fundamental understanding about how
transfer pricing rules should work, is not there apparently.
because the program makers simply disregarded this point that was made.
>> It sounds very logical, but on the other hand,
I think that transfer pricing rules, they have become very, very complicated.
But, what, did, would you share this view?
What was the future of transfer pricing, is it sustainable?