Benefit test

Tax Glossary Definition

Benefit test

Benefit Test – A principle applied to determine whether a taxpayer actually receives a measurable or genuine advantage, either directly or indirectly, from a specific transaction or arrangement. It is used by tax authorities to verify that claimed deductions, exemptions, or intercompany charges correspond to real economic activity and not artificial structures.

Example: In transfer pricing, the benefit test is applied to confirm that the services one group entity provides to another deliver a clear and demonstrable benefit before the related service fees are treated as deductible expenses.

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