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fair market value and changing resident country
A, an individual resident in Country X, owns capital property with a cost of 100 and a fair market value of 1,000. A moves from Country X to Country Y. Country X has a rule that deems departing residents to have disposed of their capital property for fair market value. Country Y does not have any similar rule. Two years after moving to Country Y, A sells the property for 1,200. What is the problem? What might X do to avoid the problem?
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Another homework question? Probably, but no matter!
To answer the question, I would need to know how Country Y's tax law addresses world-wide income. If there is no world-wide income provision in the tax law, then there are NO tax consequences in Country Y when the property is sold. The Country X tax issue was dealt with when A was forced to declare the sale of the asset when he left country X. If country Y DOES tax world-wide income, it most likely will allow a credit for the taxes paid in Country X due to the forced "sale" upon A's departure. |
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Ok , thanks .
The problem is The Country X tax issue was dealt with when A was forced to declare the sale of the asset when he left country X. Since this transfer is between non-arm's length parties, it will be deemed to occur at the fair market value of the rights transferred. If the transaction is carried out at a time when the shareholders of A are the only ones who know the true potential value of the rights, The Country Y tax authorities may accept a transfer price for the rights that does not reflect the future value fully. Once the transfer has been made, all of the future profits from the exploitation of the rights to the game will accrue to A rather than X and will escape Y tax. Tjis is true structure ? |
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