OECD – Transfer pricing-related discussion drafts (BEPS Action 10)
December 16: The Organisation for Economic Cooperation and Development (OECD) today released two discussion drafts under the base erosion and profit shifting (BEPS) project that focus on transfer pricing aspects—specifically under BEPS Action 10 (“Assure that transfer pricing outcomes are in line with value creation” in relation to “other high risk transactions”).
The first discussion draft [PDF 172 KB] concerns the transfer pricing aspects of cross-border commodity transactions (BEPS Action 10).
The second discussion draft [PDF 402 KB] concerns the use of profit splits in the context of global value chains as part of the work on BEPS Action 10.
Overview
BEPS Action 10 identifies that work needs to be undertaken to develop:
…rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties. This will involve adopting transfer pricing rules or special measures to … clarify the application of transfer pricing methods, in particular profit splits, in the context of global value chains.
Cross-border commodity transactions
An OECD release explains that the discussion draft released today concerning the transfer pricing aspects of cross-border commodity transactions:
Examines a number of scenarios in which it may be more difficult to apply one-sided transfer pricing methods to determine outcomes that are in line with value creation
Poses questions that focus on the circumstances in which the application of a transactional profit split method may be appropriate, as well as the ways in which the factors used to split the profits can align profits and value creation
Responses to these questions will be taken into account in considering revisions to the guidance on the use of the transactional profit split method in Chapter II of the OECD Transfer Pricing Guidelines. Comments are requested by 6 February 2015.
Profit splits in context of global value chains
According to the second OECD release, BEPS Action 10 identifies that work needed to develop:
…rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties. This will involve adopting transfer pricing rules or special measures to . . . (iii) provide protection against common types of base eroding payments.
A number of countries have reported difficulties in relation to the pricing of cross-border commodity transactions—particularly in terms of determining adjustments to quoted prices, verifying the pricing date, and accounting for the involvement of other parties in the supply chain. These difficulties have led to the emergence of the so-called sixth method for pricing commodity transactions.
The second of today’s discussion drafts contains proposals for additional guidance, and seeks further input in addressing difficulties in relation to the pricing of cross-border commodity transactions. Comments are due by 6 February 2015.
