On May 9, 2018 the OECD announced that it is considering starting two new projects to revise the guidance in Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines.
In this respect the OECD invites interested parties to comment on:
· the future revision of Chapter IV, “Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes” of the Transfer Pricing Guidelines; and
· the future revision of Chapter VII, “Special Considerations for Intra-Group Services”, of the Transfer Pricing Guidelines.
Scoping of the future revision of Chapter IV (administrative approaches) of the Transfer Pricing Guidelines
Working Party No. 6 on the Taxation of Multinational Enterprises discussed the scope of the future revision of Chapter IV of the TPG at its meeting on 16-20 April 2018, and made a preliminary identification of the sections that should be revised and the issues that could potentially be covered as part of this revision.
For purposes of informing this scoping exercise, the Inclusive Framework would welcome the views of interested parties on how the guidance in Chapter IV could be revised or supplemented to reflect the latest developments on administrative procedures aimed at minimising transfer pricing disputes and to help resolve them, increasing tax certainty for taxpayers and preventing double taxation.
While Working Party No. 6 has decided that that there is no need at this stage to revise or supplement the current guidance on safe harbours and arbitration, public comments are invited on those issues, and especially welcomed on the following other issues:
· What additional aspects or mechanisms to minimise the risk of transfer pricing disputes should be included as part of the guidance on transfer pricing compliance practices (e.g. co-operative compliance, risk assessment tax examination practices)? While input received in the past on some of these issues in the context of the work of the Forum on Tax Administration will be considered, input on business experience with such aspects or mechanisms would be useful, including what have been the advantages and/or challenges?
· Relevant aspects of the minimum standards and best practices contained in the Report on BEPS Action 141 related to transfer pricing have been incorporated into Chapter IV in the 2017 edition of the TPG. Considering this, and based on your experience, is there any additional guidance that would be useful in relation to corresponding and/or secondary adjustments to minimise the risk of double taxation?
· Element 2.7 of Action 14 minimum standards and the best practices related to APAs contained in the Report on BEPS Action 14 have also been incorporated into Chapter IV in the 2017 edition of the TPG. Considering this, is there any additional guidance that could be provided on advance pricing arrangements? Based on your experience, are any features of APAs or specific initiatives related to APAs that could strengthen their role in minimising transfer pricing disputes? What are the advantages of such initiatives and the implementation challenges?
· Are there any other mechanisms or issues relevant to the administration of transfer pricing and/or to prevention and resolution of transfer pricing disputes for which guidance should be developed as part of the revision of Chapter IV of the TPG?
Click here to be forwarded to the consultation document: “Scoping of the future revision of Chapter IV (administrative approaches) of the Transfer Pricing Guidelines” as available on the website of the OECD.
Scoping of the future revision of Chapter VII (intra-group services) of the Transfer Pricing Guidelines
The original text of Chapter VII was included in the TPG in 1996 and since then it has remained largely unchanged. In 2015, as part of the Base Erosion and Profit Shifting (“BEPS”) Project, Chapter VII was updated to incorporate a simplified approach to determine the arm’s length charges for low value-adding intra-group services (“LVAIGS”). Apart from this, the chapter has not been reviewed to incorporate the guidance developed under BEPS Actions 8-10. Accordingly, the future revision of Chapter VII could be focused on aligning the guidance with Chapter I, in particular, but also Chapters VI and VIII, as well as considering whether and, if so how, to incorporate the ongoing work on the use of profit split methods and financial transactions.
The concern related to the guidance in Chapter VII is its practical application, rather than potential theoretical disagreements on the underlying principles. Many practitioners, academics and tax administrations have identified a number of practical challenges that require further analysis. In particular:
· Demonstrating that a service has been rendered and/or that the service rendered provides benefits to the recipient;
· Drawing a distinction between: (i) activities which do or do not benefit the local affiliates; (ii) benefits that purely arise from group membership and those that arise from a deliberate concerted action; and (iii) shareholder activities and stewardship activities;
· Identifying in practice duplicated activities;
· Finding an appropriate allocation key for charging intra-group services;
· Determining the costs that should or should not be included in the cost base of the remuneration for the provision of services between associated enterprises; and,
· Assessing the arm’s length conditions for services provided in connection with the use of intangibles; services that are highly integrated with the value creation of the MNE group; and/or involve significant risks.
For purposes of informing this scoping exercise, the Inclusive Framework would welcome the views of interested parties on how the guidance in Chapter VII could be revised or supplemented to address the issues related to the practical implementation of the TPG in the context of intra-group services, thus increasing tax certainty for taxpayers and preventing double taxation.
Click here to be forwarded to the consultation document: “Scoping of the future revision of Chapter VII (intra-group services) of the Transfer Pricing Guidelines” as available on the website of the OECD.
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