The
Organization for Economic Cooperation and Development (OECD) has released two
discussion drafts and a consultation paper on proposed revisions to its
transfer pricing guidelines.
The
documents, released on June 6, include discussion drafts on the transfer
pricing aspects of intangibles, and on proposed revisions to the safe harbours
section of the transfer pricing guidelines, in addition to a consultation on
certain transfer pricing timing issues.
The
OECD launched its project on the transfer pricing aspects of intangibles in
2010. A scoping paper was then published on the OECD website for public
comment. In the interim three public consultations have been held with interested
commentators. At the business consultation held in November 2011,
representatives of the business community suggested that it would be helpful if
the OECD were to release interim drafts of its work as it progresses for
further detailed public comment. The new discussion draft prepared by OECD
Working Party No. 6, is such an interim draft. It contains: a proposed revision
of the provisions of Chapter VI of the OECD Transfer Pricing Guidelines; and a
proposed revision of the Annex to Chapter VI containing examples illustrating
the application of the provisions of the revised text of Chapter VI.
The
OECD's Guidelines prescribe how transactions between associated enterprises in
different tax jurisdictions should be treated to accurately determine the income
and expenses of the concerned parties, to ensure the entities are subject to
the same tax as would be the case if the entities were unconnected.
Presentations
at the previous discussions on the transfer pricing aspects of intangibles
focused on five topics:
- The definition of intangibles for purposes of Chapter VI of the OECD Transfer Pricing Guidelines;
- The definition and treatment of goodwill for transfer pricing purposes;
- The definition of the term 'brand' and the importance of brand in transfer pricing analyses;
- The appropriate approach for determining entitlement to intangible related returns for transfer pricing purposes; and
- The importance of corporate synergies in a transfer pricing analysis.
The
discussion draft on safe harbours has been released as part of its project to
improve the administrative aspects of transfer pricing. This project started
with a survey of the transfer pricing simplification measures in existence in
OECD and non-OECD countries and led to Working Party No.6 to review the current
guidance on safe harbours in Chapter IV of the OECD Transfer Pricing Guidelines
for Multinational Enterprises and Tax Administrations (TPG).
According
to the OECD, the current guidance in the TPG "has a somewhat negative tone
regarding transfer pricing safe harbours" which does not accurately
reflect the practice of OECD member countries, a number of which have adopted
transfer pricing safe harbour provisions. Also, it says, the current guidance
is largely silent with regard to the possibility of a bilateral agreement
establishing a safe harbour, even though some countries have favourable
experience with such bilateral agreements.
This
discussion draft includes proposed revisions of the section on safe harbours in
Chapter IV of the TPG and associated sample memoranda of understanding for
competent authorities to establish bilateral safe harbours.
The
OECD Secretariat has also invited public comment on certain timing issues
related to transfer pricing, in connection with the work of Working Party No. 6
on intangibles and other projects. Modifications to the Transfer Pricing
Guidelines on these issues have been discussed by the Working Party delegates,
but those modifications are not agreed by all countries. The OECD also said
that they raise certain difficult issues on which comment by the business
community is specifically requested by the Secretariat.
The
paragraphs under consideration highlight the fact that OECD member countries
follow two different approaches in applying the arm’s length principle, and the
consultation is designed to inform the Secretariat of the practical problems
caused by the existence of these two different approaches.
Also
on June 6, the OECD released a document which presents an updated analysis of
existing transfer pricing simplification measures in place in both OECD and
non-OECD countries as of January 1, 2012.
The
survey described in this document focused specifically on simplification
measures countries have adopted as part of their transfer pricing regimes.
These include not only safe harbours but also measures such as less stringent
documentation requirements, alleviated penalties, and streamlined procedures,
among other things. Some of the key findings are that:
- More than 80% of the respondent countries have transfer pricing simplification measures in place;
- Almost 75% of available simplification measures are directed to SMEs, small transactions and low value added intra-group services;
- Out of 33 respondent countries which have simplification measures, 16 countries have safe harbours, i.e. simplified transfer pricing method, safe harbour arm’s length range/rate, safe harbour interest rate, and exemption from transfer pricing rules/adjustment; and
- Of those 16 countries, 10 countries have simplified transfer pricing methods, safe harbour arm’s length range/rate and safe harbour interest rates.
Written
comments on the intangibles and safe harbours discussion drafts are requested
to be provided by September 14, 2012. It is anticipated that a public
consultation on these discussion drafts will be held in Paris during the week
of November 5, 2012. Depending on the nature of the comments received, the OECD
may also hold a public consultation on the issue of timing issues related to
transfer pricing during the week of November 5.
