The Organisation for Economic Cooperation and Development (OECD) has published a discussion draft on the transfer pricing aspects of financial transactions under its initiative for fairer and transparent corporate financial reporting, the Base Erosion and Profit Shifting (BEPS) initiative.
The organisation is inviting public comments on the draft, which deals with follow-up work in relation to Actions 8-10 ("Assure that transfer pricing outcomes are in line with value creation") of the BEPS Action Plan.
The draft has two aims:
- to clarify the application of the principles included in the 2017 edition of the OECD Transfer Pricing Guidelines to financial transactions; and
- to address specific issues related to the pricing of financial transactions such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance.
The OECD states that interested parties are invited to send their comments on this discussion draft, and to respond to the specific questions included in the boxes, by 7 September 2018 by e-mail to TransferPricing@oecd.org in Word format (in order to facilitate their distribution to government officials). Comments in excess of 10 pages should attach an executive summary limited to two pages. Comments should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.
For more information see the OECD website's dedicated page.
Consensus needed on arm's length principle
An opinion piece published yesterday by TA economics, a Benelux-based consultancy firm with specialisation in transfer pricing, notes that the OECD's draft was published “behind schedule”. But moreover, the author, Andy Neuteleers, a partner at TA economics, says that the reason for the tardy publication is that countries participating in the OECD Working Party 6 discussions “could not reach consensus on some fundamental issues”. The current draft is therefore a 'non-consensus' draft. He writes: “It may be hard to imagine that consensus can’t be reached on the application of the arm’s length principle, a global standard. However, (at least for now) there still is no consensus.”
Mr. Neuteleers goes on to add that this “severely undermines the legitimacy of using the arm’s length principle” and that, in the opinion of TA economics, the arm’s length standard “is very clear and the only reasonable standard”.
Mr. Neuteleers also voices a suspicion that countries involved in the discussions “tend to follow their own (political) agendas rather than come up with pragmatic solutions within the scope of the arm’s length principle, a global standard.”
The article urges all interested parties, including the business community and transfer pricing professionals, to submit comment to the OECD regarding the technical merits and proposals for the practical implementation of the arm's length principle.
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