1. (a) In case it shall appear to the Tax Commission that any agreement, understanding or arrangement exists between the taxpayer and any other corporation or any person or firm, whereby the activity, business, income or assets of the taxpayer within New York State is improperly or inaccurately reflected, the Tax Commission may, in its discretion, make such adjustments as it deems necessary in order to accurately reflect the tax liability of the taxpayer. In exercising its discretion, the Tax Commission is empowered to adjust:

   1. (1) items of income or deduction in computing entire net income or alternative entire net income;
   2. (2) assets; and

   3. (3) wages, salaries and other personal service compensation, receipts or deposits in computing any allocation percentage, provided only that entire net income or alternative entire net income be adjusted accordingly and that any asset directly traceable to the elimination of any receipt be eliminated from taxable assets so as to accurately determine the tax.

      If, however, in the determination of the Tax Commission, such adjustments do not or cannot effectively provide for the accurate determination of the tax, the Tax Commission shall be authorized to require the filing of a combined return by the taxpayer and any such other corporations. Thus, the Tax Commission is not required to exercise its authority under this section and, in lieu thereof or in addition thereto, a combined return may be required or permitted pursuant to the provisions of Subpart 21-2 of this Title.

2. (b) The Tax Commission may include in the entire net income or alternative entire net income of the taxpayer the fair profits which, but for an agreement, arrangement or understanding as described in subdivision (a) of this section, the taxpayer might have derived from any transaction:

   1. (1) where any taxpayer conducts its activity or business under any agreement, arrangement or understanding in such manner as either directly or indirectly to benefit its members or stockholders, or any of them, or any person or persons directly or indirectly interested in such activity or business, by entering into any transaction at more or less than a fair price which, but for such agreement, arrangement or understanding, might have been paid or received therefor; or
   2. (2) where any taxpayer enters into any transaction with another corporation on such terms as to create an improper loss or net income.

3. (c) In determining whether an agreement, understanding or arrangement between the taxpayer and any other corporation or any person or firm results in an improper or inaccurate reflection of the activity, business, income or assets of the taxpayer within New York State, consideration is given to such factors as:

   1. (1) whether the taxpayer controls or is controlled by such other corporation, person or firm, or whether the taxpayer and such other corporation, person or firm are controlled by the same interest;
   2. (2) whether the agreement, understanding or arrangement in question would have been entered into, or whether the terms and conditions would have been the same, had the element of control been absent and had the parties been dealing at arm's length; and
   3. (3) whether the agreement, understanding or arrangement in question has a reasonable business purpose, or whether it appears to be arbitrary or to have been motivated principally by a tax avoidance purpose.
4. (d) In applying the provisions of subdivision (a) of this section, the Tax Commission will consider, and may utilize in making adjustments or determining a fair price or fair profit, the principles and rules contained in sections 1.482-1 and 1.482-2 of the Federal income tax regulations (26 CFR 1.482-1; 26 CFR 1.482-2) to the extent that they are relevant and can be made applicable to the provisions of this section.

Tax Law, § 1462(g)