Oecd Transfer Pricing Guidelines Pdf Free Download

The 2022 edition of the OECD TP Guidelines mainly reflects a consolidation of a number of reports resulting from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. It incorporates the following three revisions of the 2017 edition: (i) revised guidance on the transactional profit split method approved by the OECD/Inclusive Framework on BEPS in 2018; (ii) guidance for tax administrations on the application of the approach to Hard-to-Value Intangibles approved in 2018; and (iii) transfer pricing guidance on financial transactions approved in 2020. It also includes some related changes for consistency.

Following its first publication in 1979, the original version of the OECD TP Guidelines was approved by the OECD Council in 1995. A limited update was issued in 2009, primarily to reflect the adoption of the arbitration clause in the 2008 update of the Model Tax Convention. In the 2010 edition, Chapters I-III were substantially revised, with new guidance on: (i) the selection of the most appropriate transfer pricing method for the circumstances of the case; (ii) the practical application of transactional profit methods; and (iii) the performance of comparability analyses. The 2010 edition also included the addition of Chapter IX on the transfer pricing aspects of business restructurings. The 2017 edition incorporated substantial revisions to reflect clarifications and revisions contained in the 2015 BEPS Reports on Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting).

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The treatment of Hard-to-Value Intangibles (HTVI) for transfer pricing purposes was addressed in the report of BEPS Actions 8-10 and incorporated in the 2017 edition of OECD TP Guidelines. The guidance was developed to tackle the asymmetry of information available between taxpayers and tax administrations regarding the potential value of an HTVI, when it is transferred. In summary, the HTVI approach authorizes tax administrations to use ex post evidence on the financial outcomes of an HTVI transaction (i.e., information gathered in hindsight about how valuable an intangible has turned out to be) as presumptive evidence on the appropriateness of the ex ante pricing arrangements.

The 2020 report on the transfer pricing guidance on financial transactions3 contained follow up guidance in relation to BEPS Action 4 (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments) and Actions 8-10. The guidance now has been incorporated in the 2022 edition of the OECD TP Guidelines, mainly in new Chapter X.

Companies should understand and analyze the implications of this development for each jurisdiction in which they operate. For example, companies should review the amendments to the OECD TP Guidelines with respect to their global operations and their current transfer pricing policies and approaches. There will likely be increased scrutiny by tax authorities from OECD member countries and non-OECD member countries on the application of the concepts reflected in the amendments to cross-border intercompany transactions.

The TP Guidelines are also intended to provide guidance in the resolution of transfer pricing cases in mutual agreement proceedings between OECD member countries and in certain arbitration proceedings.

The new version includes revised guidance on the transactional profit split method, guidance for tax administrations on the application of the approach to hard-to-value intangibles and transfer pricing guidance for financial transactions. Also, consistency changes have been made to the rest of the OECD Transfer Pricing Guidelines.

The final form of new guidance on financial transactions was issued in 2020 and it is the first specific guidance from the OECD focusing on the transfer pricing aspects of financial transactions. This section provides illustrative examples of the transfer pricing aspects of financial transactions

Transfer pricing is a mechanism to determine the pricing of transactions between companies that are part of the same group. A significant volume of global trade consists of international transfers of goods and services, capital and intangibles, such as intellectual property, within a multinational group. These are called intra-group transactions. According to the current international standards - the OECD's arm's length principle - transactions between related entities of a multinational group must be priced on the same basis as transactions between third parties under comparable circumstances. This arm's length principle is further elaborated in the OECD's Transfer Pricing Guidelines.

At European Union level, transfer pricing rules are currently not harmonised through legislative acts. While all Member States have in place domestic legislation that provides for some degree of a common approach by following the arm's length principle, even if its application is not identical across Member States, the definition of associated enterprises and the notion of control, which are pre-conditions to applying transfer pricing, differ between Member States. Certain Member States apply a threshold of 25% while others apply a threshold of 50% shareholding when it comes to determining whether the control criterion is met. The complexity of the transfer pricing rules also causes a number of other problems, such as:

The proposal will increase tax certainty and mitigate the risk of litigation and double taxation. Moreover, it will also reduce the opportunities for companies to use transfer pricing for aggressive tax planning purposes.

A number of tax administrations have consequently published domestic guidance on some of the transfer pricing implications of COVID-19. While this is an important first step in facilitating taxpayer compliance and delivering greater tax certainty, the two-sided nature of transfer pricing means that only through a common agreed approach can tax administrations effectively enhance tax certainty for businesses operating across broders.

This is where the Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic published today has an important role to play. Representing the consensus view of the 137 members of the OECD/G20 Inclusive Framework on BEPS, it provides the much needed clarification and support for taxpayers and tax administrations as they evaluate the application of transfer pricing rules for the period impacted by COVID-19. While the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations continue to be relevant to help tax administrations and multinational enterprises find mutually satisfactory solutions to transfer pricing cases, further practical guidance was necessary to support its application during the crisis.

The availability of third party information is at the heart of the application of transfer pricing rules. While the pandemic has exacerbated the limitations of available data, the Guidance provides pragmatic approaches to address information shortcomings on comparables.

We know that many businesses have been hit hard by the pandemic and may be making losses throughout their value chains. For these businesses, how their transfer pricing policies effectively allocate such losses and COVID-19 specific costs between associated entities is particularly important.

Another priority area laid out in the Guidance covers advance pricing agreements (APAs), which remain as one of the key instruments to enhance tax certainty regarding transfer pricing. In that spirit, the Guidance encourages taxpayers and tax administrations to adopt a flexible and collaborative approach given the current economic conditions.

The guidelines provide more clarity on the profit split method. The profit split method is not always the most appropriate transfer pricing method. The guidelines now contain hallmarks to help companies determine when the profit split may be the most appropriate method. These hallmarks are:

According to the updated guidelines, presence of reliable comparables for a transaction make it unlikely that the profit split method is the most appropriate transfer pricing method. However, absence of comparables should not automatically result in the profit split being the most appropriate method. The guidelines emphasize this heavily, as the first 10 out of 16 total examples attached in the annex illustrate where the profit split either is or is not the most appropriate method to determine a correct remuneration.

The inclusion of the guidance on the profit split method clarifies a lot, but practice is never as clear cut as the examples formulated by the OECD. The guidelines now offer useful information on when the profit split method may not be the most appropriate method. We suggest (re)assessing whether the profit split is the correct transfer pricing method for a transaction. Taxpayers can take solace in the message that tax authorities should not use the profit split method as a fallback in case no comparables exist.

The transfer pricing guidelines incorporated guidance for tax administrations on the application of the approach to hard-to-value intangibles (HTVI). The term HTVI is used for intangibles or rights in intangibles of which, at the time of their transfer between associated enterprises, no reliable comparable existed and, at the time the transactions was entered into, projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible were highly uncertain. This makes it difficult to predict the level of ultimate success and thus the expected profit of the intangible at the time of the transfer. An example of a HTVI is a patented pharmaceutical compound.

The transfer pricing guidelines provide opportunities for tax authorities to adjust existing transfer pricing arrangements with regard to HTVI based on information that was not available at the time of entering into the transfer pricing arrangements. Therefore, we advise to review your transfer pricing arrangements and (re)assess whether they are in line with the applicable guidelines. 17dc91bb1f