A functional specification is not necessarily a specification to build something new. It can be used to delineate the existing. Please, explain why and give examples and supporting facts. Solution Answer:) When designing a delineation system, knowledge of delineation principles are necessary, which may be instrumental in selecting an effective delineation system that should be applied consistently throughout tthe state. For example, delineating the group based on a high-percentage ownership threshold increases the potential for transfer pricing strategies seeking to move profits out of or into the taxable group: the controlled – but non-group – affiliates can be used to shift profits as long as transactions between a particular group member and those controlled entities excluded from consolidation remain subject to SA and arm\'s length pricing. Transactions with these non-consolidated affiliates can also be used to manipulate apportioning factors across companies and jurisdictions for tax-reduction purposes: for example, if a sales by destination factor were used to share out the CTB, there would be a strong incentive to inflate the value of sales by group member affiliates to non-member affiliates situated in low-tax jurisdictions. By contrast, under a legal definition of the group that set a level of ownership as low as 50%, these sorts of strategies would no longer be feasible because, by definition, all entities outside the group would be outside group control (i.e. all nongroup entities would be non-related third parties, outside the scope of transfer pricing strategies). .

1. A functional specification is not necessarily a specification to build something new. It can be
used to delineate the existing. Please, explain why and give examples and supporting facts.
Solution
Answer:)
When designing a delineation system, knowledge of delineation principles are necessary, which
may be instrumental in selecting an effective delineation system that should be applied
consistently throughout tthe state.
For example, delineating the group based on a high-percentage ownership threshold increases the
potential for transfer pricing strategies seeking to move profits out of or into the taxable group:
the controlled – but non-group – affiliates can be used to shift profits as long as transactions
between a particular group member and those controlled entities excluded from consolidation
remain subject to SA and arm's length pricing. Transactions with these non-consolidated
affiliates can also be used to manipulate apportioning factors across companies and jurisdictions
for tax-reduction purposes: for example, if a sales by destination factor were used to share out
the CTB, there would be a strong incentive to inflate the value of sales by group member
affiliates to non-member affiliates situated in low-tax jurisdictions. By contrast, under a legal
definition of the group that set a level of ownership as low as 50%, these sorts of strategies
would no longer be feasible because, by definition, all entities outside the group would be
outside group control (i.e. all nongroup entities would be non-related third parties, outside the
scope of transfer pricing strategies).