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Transfer pricing: OECD consultations

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An OECD working party on the transfer pricing aspects of intangibles has invited comments on a discussion draft containing proposed revisions to Chapter VI (Special considerations for intangible property) of the OECD transfer pricing guidelines.

A second discussion draft proposes revisions of the ‘safe harbours’ section in Chapter IV of the guidelines, and provides sample memoranda of understanding for competent authorities to establish bilateral safe harbours.

Comments on both discussion drafts are invited by 14 September 2012. It is anticipated that a public consultation will be held in Paris in November, the OECD said.

The ICAEW Tax Faculty noted that ‘an increasing element’ of business profits arises from the exploitation of intangibes as the major world economies become ‘increasingly based on knowledge’.

‘As more than 40% of world trade takes place between associated enterprises then the return from intangibles, and where that return is “booked” or recorded, is a major concern for tax administrations,’ it said.

Timing issues

The OECD also invited comments by 14 September on timing issues related to transfer pricing. OECD member countries follow two different approaches in applying the arm’s length principle, raising a number of difficult issues, it said.

‘In some countries, an arm’s length price setting approach is followed [where prices are] based on information that was reasonably available to them at the point in time the transaction was undertaken. In other countries, an arm’s length outcome testing approach is followed, [where] taxpayers and tax administrations test the actual outcome of their controlled transactions … to demonstrate that the conditions of those transactions were arm’s length. Such testing is generally undertaken at the end of the relevant year or at the time the tax return is filed.’

The OECD said it would be very helpful to have comments from the business community on ‘the practical problems caused by the existence of these two different approaches’.

Simplification measures

An updated analysis of existing transfer pricing simplification measures is also available.