Effect of backdating

In this situation, it may be possible to create a document after the event which recites what actually happened and which records the key terms of the supply.The document should be dated when it is actually signed, but it can refer to the historic effective date of the transaction.Financial economists held that agents or managers are effort-adverse (Jensen and Meckling 1976; Jensen and Murphy 1990), and rewards, such as stock options tied to performance, are required to provide executives the incentive to supply effort, but more specifically, to supply effort which is consistent with the interest of stockholders.This article contains adapted extracts from our guide for Tax and Transfer Pricing professions on how to put in place effective intercompany agreements for transfer pricing.To receive your free copy of the guide in full, click here.

The options available here depends on the proposed terms of the agreement, and whether it can be said that the relevant arrangements are already in operation.

The seller/principal may agree with the local sales companies to treat the arrangements as they had been in place as from the previous year end.

This could involve putting in place agency agreements now, which are dated when they are actually signed.

Typically this type of backdating occurs when the beneficiary of the backdating can reap some sort of tax or other benefit if the event had occurred on the earlier date.

Examples of improper, fraudulent backdating: However, not all backdating involves fabrication.

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