Market leading insight for tax experts
View online issue

BEPS action 8: hard-to-value intangibles

printer Mail

The OECD invites comments by 18 June 2015 on a new discussion draft for action 8 of the BEPS action plan on the transfer pricing of hard-to-value intangibles. The discussion draft sets out an approach to hard-to-value intangibles and proposes revisions to the guidance in the September 2014 BEPS report on transfer pricing and intangibles.

These are designed to provide a framework of proposals for public comment and do not necessarily represent a consensus view from G20/OECD governments. The discussion draft proposes an updated section of chapter VI on existing guidance in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

These proposals include a revision of arm’s length pricing where valuations are uncertain at the time of the transaction, adding a new section on special considerations for hard-to-value intangibles. The draft states that the arm’s length pricing question is to be determined by what independent enterprises would have done in comparable circumstances ‘to take account of the valuation uncertainty’. This will depend on facts and circumstances, but in cases where forecasts are sufficiently predictable, parties may use projections of anticipated benefits to fix a price at the outset, regardless of the eventual outcome. In cases where the outcome is highly uncertain to make predictions too risky, parties can for example adopt shorter term agreements, introduce price adjustment clauses or alternative payment structures, including the possibility of renegotiation in the event of major unforeseen developments.

The discussion draft also identifies potential difficulties facing tax authorities in verifying this arm’s length basis determining price, leading potentially in informational asymmetry and a risk of systematic mispricing. The draft therefore suggests a potential need for ‘special considerations’ in circumstances where no sufficiently reliable comparable exists and a lack of reliable projections, using actual results (‘ex post’ outcomes) to determine whether a price adjustment is necessary in those circumstances where the tax authority cannot confirm the reliability of forecast information.

Comments must be submitted by 18 June, and a public consultation will be held at the OECD in Paris on 6–7 July. For discussion draft, see