Kentucky Administrative Regulations
Title 103 - FINANCE AND ADMINISTRATION CABINET - DEPARTMENT OF REVENUE
Chapter 16 - Income Tax; Corporations
Section 103 KAR 16:230 - Intangible expenses, intangible interest expenses and management fees
Current through Register Vol. 50, No. 6, December 1, 2023
RELATES TO: KRS 131.130, 141.205
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.205 disallows intangible expenses, intangible interest expenses and management fees when those expenses and fees are directly or indirectly paid, accrued or incurred to, or in connection directly or indirectly with one (1) or more direct or indirect transactions with one (1) or more related members or with a foreign corporation, unless certain criteria are met. This administrative regulation establishes the requirements for when these expenses and fees are allowed or disallowed.
Section 1. Definitions.
Section 2. Disclosure; General. As part of the required disclosure, the entity shall provide a description of the nature of the payment made to the recipient. This description shall contain:
Section 3. Disclosure; Arm's Length Transaction. An entity may be required to establish that the subject transaction was made at a commercially reasonable rate and at terms comparable to an arm's length transaction.
Section 4. Disclosure; Intangible Expense, Intangible Interest Expense, or Management Fee. With respect to an intangible expense, intangible interest expense, or management fee, the entity shall make additional disclosures if it cannot utilize any of the other methods to establish that it is entitled to the deduction. The entity shall show that the payment made to the recipient was subject to, in its state or country of commercial domicile, a net income tax, or a franchise tax, measured by, in whole or in part, net income. If the recipient is a foreign corporation, the foreign nation shall have in force a comprehensive income tax treaty with the United States.
Section 5. Corporation or Pass-Through Entity. A corporation or pass-through entity that during the taxable year directly or indirectly paid, accrued, or incurred intangible expenses, intangible interest expenses, or management fees to a related member or foreign corporation shall attach to its tax return filed with the department:
Section 6. The disclosures related to management fees and the provisions of Section 5 of this administrative regulation shall apply to taxable years beginning on or after January 1, 2014.
Section 7. The forms and
materials prescribed herein may be inspected, copied, or obtained, subject to
applicable copyright law, from 8:00 a.m. to 4:30 p.m. at the Kentucky
Department of Revenue, 501 High Street, Frankfort, Kentucky 40601; at any
Kentucky Department of Revenue Taxpayer Service Center during normal operating
hours; and on the department's Web site at
32 Ky.R. 1823; Am. 2289; 33 Ky.R. 66; eff. 8-7-2006; 39 Ky.R. 357, 784; eff. 11-1-2013; 45 Ky.R. 1307, 2059; eff. 2-1-2019.
STATUTORY AUTHORITY: KRS 131.130