OECD consults on review of intra-group transfer pricing

The OECD is seeking feedback on the scope of proposed revisions to its transfer pricing guidelines covering intra-group services and administrative processes which need updating to match the current global tax landscape

The proposal is to amend the guidance on these core topics, with proposed revisions to chapter IV, administrative approaches to avoiding and resolving transfer pricing disputes, and a refresh of chapter VII on intra-group treatments.

Chapter VII on special considerations for intra-group services was first included in the transfer pricing guidelines in 1996 and 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.

Apart from this, the chapter has not been reviewed to incorporate the guidance developed under BEPS actions 8-10.

Accordingly, the OECD says the future revision of chapter VII could be focused on aligning the guidance with chapter I in particular, and also chapters VI and VIII, as well as considering whether and  how to incorporate the ongoing work on the use of profit split methods and financial transactions.

However, the OECD’s principal concern is how chapter VII could be revised or supplemented to address the issues related to the practical implementation of the transfer pricing guidelines in the context of intra-group services, in order to set more defined tax environment for corporate taxpayers and prevent double taxation.

The OECD points out that many practitioners, academics and tax administrations have identified a number of practical problems with the current approach that require further analysis. Specifically, these include demonstrating that a service has been rendered and/or that the service rendered provides benefits to the recipient.

In addition, there are issues around drawing a distinction between activities which do or do not benefit the local affiliates; benefits that purely arise from group membership and those that arise from a deliberate concerted action; and shareholder activities and stewardship activities.

The OECD is also considering including advice on identifying in practice duplicated activities; finding an appropriate allocation key for charging intra-group services; and 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.

It will also review the arm’s length conditions for services connected to the use of intangibles, services that are highly integrated with the value creation of the multinational group, and/or involve significant risks.

Administrative compliance

On administrative issues, the OECD says the guidance needs updating as it has only had minor revisions since it was first included in the transfer pricing guidelines when these were adopted in 1995.

While there have been partial revisions since, the guidance about examination practices and mechanisms to prevent and resolve tax disputes needs to be revised, while it is considering whether to include guidance on risk assessment.

The OECD is now inviting public comments on these specific issues, although its working party has decided that that there is no need at this stage to revise or supplement the current guidance on safe harbours and arbitration.

It is seeking views on what additional aspects or mechanisms to minimise the risk of transfer pricing disputes should be included as part of the guidance (eg, co-operative compliance, risk assessment tax examination practices). Comments are also sought on any additional guidance required regarding minimising double taxation or advance pricing arrangements.

The closing date for comment is 20 June 2018 to TransferPricing@oecd.org in Word format. Comments in excess of 10 pages should attach an executive summary limited to two pages.

OECD Scoping of the future revision of Chapter IV (administrative approaches) of the Transfer Pricing Guidelines

OECD Scoping of the future revision of Chapter VII (intra-group services) of the Transfer Pricing Guidelines

Report by Pat Sweet


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