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Virginia court clarifies scope of related party addback safe harbor exception

The Circuit Court of the City of Richmond ruled on Feb. 3 that the safe harbor exception from the Virginia corporation income tax related party addback for certain corporate expenses was limited in applicability to the portion of intangible expenses that was not only subject to tax in another state, but on which tax was actually imposed. Granting summary judgment in favor of the Virginia Department of Taxation, the circuit court noted that the original purpose of the legislation was to “close corporate loopholes” and ensure that income attributable to Virginia was appropriately taxed.

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