(April 29, 2015) 

On April 29, 2015 the OECD published a Public Discussion Draft on Action 8 of the BEPS Action Plan (Assure that transfer pricing outcomes are in line with value creation: Intangibles). The Discussion Draft is titled: “Public Discussion Draft – BEPS ACTION 8: REVISIONS TO CHAPTER VIII OF THE TRANSFER PRICING GUIDELINES ON COST CONTRIBUTION ARRANGEMENTS (CCAs)”.

With respect to Action 8 the BEPS Action Plan states: 

“A major issue is transfer pricing and the enforcement of the arm’s length principle. Transfer pricing rules serve to allocate income earned by a multinational enterprise among those countries in which the company does business. In many instances, the existing transfer pricing rules, based on the arm’s length principle, effectively and efficiently allocate the income of multinationals among taxing jurisdictions. In other instances, however, multinationals have been able to use and/or misapply those rules to separate income from the economic activities that produce that income and to shift it into low-tax environments. This most often results from transfers of intangibles and other mobile assets for less than full value, the over-capitalisation of lowly taxed group companies and from contractual allocations of risk to low-tax environments in transactions that would be unlikely to occur between unrelated parties.

Alternative income allocation systems, including formula based systems, are sometimes suggested. However, the importance of concerted action and the practical difficulties associated with agreeing to and implementing the details of a new system consistently across all countries mean that, rather than seeking to replace the current transfer pricing system, the best course is to directly address the flaws in the current system, in particular with respect to returns related to intangible assets, risk and over-capitalisation. Nevertheless, special measures, either within or beyond the arm’s length principle, may be required with respect to intangible assets, risk and over-capitalisation to address these flaws.

ACTIONS 8, 9, 10

Assure that transfer pricing outcomes are in line with value creation

Action 8 – Intangibles

Develop rules to prevent BEPS by moving intangibles among group members. This will involve: (i) adopting a broad and clearly delineated definition of intangibles; (ii) ensuring that profits associated with the transfer and use of intangibles are appropriately allocated in accordance with (rather than divorced from) value creation; (iii) developing transfer pricing rules or special measures for transfers of hard-to-value intangibles; and (iv) updating the guidance on cost contribution arrangements."

The discussion draft sets out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines and is intended to align the guidance in that chapter with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles as released in September 2014.

Comments should be submitted to the OECD by email by May 29, 2015.

The OECD also announced that a public consultation meeting on the Discussion Draft will be scheduled for either July 6 or July 7, 2015.

Click here to be forwarded to the Discussion Draft on Action 8 as published on the website of the OECD, which will open in a new window.

For further information click here to be forwarded to a press release as issued by the OECD in this respect.

Interested in efficiently finding more BEPS related information? Then click here to be forwarded to our BEPS LIBRARY where you can very efficiently find more BEPS related information.

Copyright – internationaltaxplaza.info

Follow International Tax Plaza on Twitter (@IntTaxPlaza)

and

Stay informed: Subscribe to International Tax Plaza’s Newsletter!