On July 4, 2016 the OECD released a Public Discussion Draft on a Revised Guidance on Profit Splits. Comments should be submitted by September 5, 2016 and should be sent by email to This email address is being protected from spambots. You need JavaScript enabled to view it. in Word format. They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA. Furthermore the OECD announced that it intends to hold a public consultation on the proposed guidance on October 11-12, 2016.
The OECD emphasizes that the views and proposals included in the discussion draft do not represent the consensus views of the CFA or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment. Therefore, to the extent the approaches discussed herein differ from the established guidance set out in the OECD Transfer Pricing Guidelines, they should not be relied upon by taxpayers or tax administrations. Moreover, all examples used herein are for illustrative purposes only and are necessarily presented with limited facts. The examples do not have applicability beyond the purpose of seeking comments on the approaches they serve to illustrate and should not be used by taxpayers or tax administrations to interpret superficially similar cases.
The discussion draft sets out the text of proposed revised guidance on the application of the transactional profit split method, together with a number of questions. The questions are intended to elicit responses which will then be taken into account by Working Party No. 6 in considering revisions to the relevant guidance in Chapter II of the Transfer Pricing Guidelines. The discussion draft necessarily concentrates on the guidance proposed to be included in Chapter II, but respondents are reminded that such guidance is provided within a framework of other relevant guidance. In particular the revisions to Chapter I set out guidance on how accurately to delineate the actual transaction between the associated enterprises, including an understanding of the broader context of the value chain to which they contribute, and of a requirement to select the most appropriate transfer pricing method to the circumstances of the case which underpins the discussion of transfer pricing methods in Chapter II. In addition, the revisions to Chapter VI include relevant guidance on identifying and evaluating intangibles. The discussion of the transactional profit split method in this discussion draft should not be taken to imply any change to this wider framework.
The subjects discussed in the discussion draft include a.o.:
· In general
· Summary of strengths and weaknesses
· Most appropriate method
o Highly integrated operations
o Unique and valuable contributions
o Group synergies
o Value chain analyses
· Guidance for application
o Various approaches for splitting profits
§ Contribution analysis
§ Residual analyses
o Determining the profits to be split
o Different measures of profits
o Splitting profits
o Profit splitting factors
§ Examples of profit splitting factors
· Asset-based factors
· Cost-based profit splitting factors
· Timing issues
· Reliance on data from a taxpayer’s own operations (internal data)
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