On July 4, 2016 the OECD issued a document for Public Review which is titled: Conforming amendments to Chapter IX of the Transfer Pricing Guidelines. The OECD’s Committee on Fiscal Affairs invites interested parties to send their comments in relation to the review of the conforming changes by August 16, 2016 by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it. in Word format.
In the invitation to review as included in the document the following is noted:
“This document contains conforming changes agreed by Working Party No. 6 of the Committee on Fiscal Affairs to Chapter IX of the Transfer Pricing Guidelines, entitled "Transfer Pricing Aspects of Business Restructurings." The conformed version of Chapter IX will replace the current 2010 version in a consolidated version of the Guidelines. Interested parties are invited to review the conforming amendments
The conforming amendments are prompted by the changes to the Guidelines set out in the 2015 Base Erosion and Profit Shifting Reports, specifically the 2015 BEPS Report on Actions 8-10, "Aligning Transfer Pricing Outcomes with Value Creation," and the 2015 BEPS Report on Action 13, "Transfer Pricing Documentation and Country-by-Country Reporting." These Reports made extensive changes to the Guidelines, particularly by deleting and replacing Section D of Chapter 1, Chapter V, Chapter VI, Chapter VII, and Chapter VIII.
The Council approved these changes to the Transfer Pricing Guidelines on 23 May 2016 and noted that the CFA will continue its work in order to make conforming changes to the Transfer Pricing Guidelines and develop a consolidated version of the Transfer Pricing Guidelines. Until that is done, the Council agreed that the provisions of the Transfer Pricing Guidelines should be interpreted to be consistent with those provisions of the Transfer Pricing Guidelines which have been amended by the 2015 BEPS Report on Actions 8-10 and 13, and that in case of perceived inconsistences the modified provisions prevail.
The most significant conforming changes required to those parts of the Guidelines that have not been modified by the 2015 BEPS Reports are contained in Chapter IX, "Transfer Pricing Aspects of Business Restructurings." Before the work done under BEPS, Chapter I provided general guidance on risk and recognition of controlled transactions. In 2010, new Chapter IX expanded this guidance in the context of the project on business restructurings on, among other matters, non-recognition and the analysis of risk assumption including references to control of risk and financial capacity.
The guidance contained in the revised Chapter I resulting from the 2015 BEPS Reports continued the development of guidance found in Chapter IX. In doing so the revisions to Chapter I took concepts and examples found in Chapter IX, and further developed the guidance.
As a result, aspects of the current Chapter IX are incorporated in the updates to Chapter I, although not word-for-word, as the guidance has been refined in accordance with the updates to Chapter I and to the rest of the Guidelines. Therefore conforming changes are needed. In making those conforming changes WP6 decided not to revisit the guidance on business restructurings but to focus attention on changes necessary to address inconsistencies, real or perceived, with the revised chapters, and to remove duplication. Inevitably, some clarifications have also been adopted as part of the conforming changes, but effort was made to limit clarifications to those essential to achieve guidance fully consistent with the 2015 BEPS Reports.
The agreed conforming changes to Chapter IX found in this document will be incorporated in an internally consistent version of the Guidelines expected to be finalised during 2016. Before that version is released, WP6 invites review by interested parties of the conforming changes. The purpose of the review is to establish that real or perceived inconsistencies with the revised parts of the Guidelines have been appropriately addressed, and duplication appropriately removed. The invitation to review should not be used as an opportunity to comment on aspects of the Guidelines which have been changed in the 2015 BEPS Reports or to comment on the guidance on business restructurings which is not affected by the conforming changes. Since there is no new guidance contained in this document that has not already been the subject of consultation, there will be no further public consultation.”
The subjects discussed in the document include a.o.:
· Introduction
o Scope
§ Business restructurings that are within the scope of this chapter
§ Issues that are within the scope of this chapter
o Applying Article 9 of the OECD Model Tax Convention and these Guidelines to business restructurings: theoretical framework
· Part I: Arm’s length compensation for the restructuring itself
o Introduction
o Understanding the restructuring itself
§ Accurate delineation of the transactions comprising the business restructuring: functions, assets and risks before and after the restructuring
§ Understanding the business reasons for and the expected benefits from the restructuring, including the role of synergies
§ Other options realistically available to the parties
§ Transfer pricing documentation for business restructurings
o Recognition of the accurately delineated transactions that comprise the business restructuring
o Reallocation of profit potential as a result of a business restructuring
§ Profit potential
§ Reallocation of risks and profit potential
o Transfer of something of value (e.g. an asset or an ongoing concern)
§ Tangible assets
§ Intangibles
§ Transfer of activity (ongoing concern)
§ Outsourcing
o Indemnification of the restructured entity for the termination or substantial renegotiation of existing arrangements
§ Whether commercial law supports rights to indemnification for the restructured entity under the facts of the case as accurately delineated
§ Whether the existence or absence of an indemnification clause or similar provisions (as well as the terms of such a clause where it exists) under the terms of the arrangement, as accurately delineated, is arm’s length.
§ Which party should ultimately bear the costs related to the indemnification of the party that suffers from the termination or re-negotiation of the agreement
· Part II: Remuneration of post-restructuring controlled transactions
o Business restructurings versus “structuring”
§ General principle: no different application of the arm’s length principle
§ Possible factual differences between situations that result from a restructuring and situations that were structured as such from the beginning
o Application to business restructuring situations: selection and application of a transfer pricing method for the post-restructuring controlled transactions
o Relationship between compensation for the restructuring and post-restructuring remuneration
o Comparing the pre- and post-restructuring situations
o Location savings
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