On June 21, 2018 the OECD released Revised Guidance on the Application of the Transactional Profit Split Method (BEPS Action 10). The revised guidance, while not being prescriptive, clarifies and significantly expands the guidance on when a profit split method may be the most appropriate method.
The guidance describes presence of one or more of the following indicators as being relevant:
· Each party makes unique and valuable contributions;
· The business operations are highly integrated such that the contributions of the parties cannot be reliably evaluated in isolation from each other;
· The parties share the assumption of economically significant risks, or separately assume closely related risks.
The guidance makes clear that while a lack of comparables is, by itself, insufficient to warrant the use of the profit split method, if, conversely, reliable comparables are available it is unlikely that the method will be the most appropriate.
The revised text also expands the guidance on how the profit split method should be applied, including determining the relevant profits to be split, and appropriate profit splitting factors.
Sixteen examples are included in the revised guidance to illustrate the principles discussed in the text, and demonstrate how the method might be applied in practice. These will be included in Annex II to Chapter II of the Guidelines.
Click here to be forwarded to the Revised Guidance on the Application of the Transactional Profit Split Method as released on June 21, 2018 by the OECD.
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