OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (Volume 2017)

612 Pages·2017·3.76 MB·English

by  Organization for Economic Cooperation and Development

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July 2017

OECD Transfer Pricing
Guidelines
for Multinational
Enterprises and Tax
Administrations
JULY 2017
This work is published under the responsibility of the Secretary-General of the
OECD. The opinions expressed and arguments employed herein do not
necessarily reflect the official views of OECD member countries.
This document and any map included herein are without prejudice to the status
of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
Please cite this publication as:
OECD (2017), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations 2017, OECD Publishing, Paris.
http://dx.doi.org/10.1787/tpg-2017-en
ISBN 978-92-64-26273-7 (print)
ISBN 978-92-64-26512-7 (PDF)
Series: OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations
ISSN 2076-9709 (print)
ISSN 2076-9717 (online)
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli
authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights,
East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
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© OECD 2017
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FOREWORD –

Foreword
These Guidelines are a revision of the OECD Report Transfer Pricing and
Multinational Enterprises (1979). They were approved in their original
version by the Committee on Fiscal Affairs on 27 June 1995 and by the
OECD Council for publication on 13 July 1995.
Since their original version, these Guidelines have been supplemented:
• By the report on intangible property and services, adopted by the
Committee on Fiscal Affairs on 23 January 1996
[DAFFE/CFA(96)2] and noted by the Council on 11 April 1996
[C(96)46], incorporated in Chapters VI and VII;
• By the report on cost contribution arrangements, adopted by the
Committee on Fiscal Affairs on 25 June 1997
[DAFFE/CFA(97)27] and noted by the Council on 24 July 1997
[C(97)144], incorporated in Chapter VIII;
• By the report on the guidelines for monitoring procedures on the
OECD Transfer Pricing Guidelines and the involvement of the
business community [DAFFE/CFA/WD(97)11/REV1], adopted by
the Committee on Fiscal Affairs on 24 June 1997 and noted by the
Council on 23 October 1997 [C(97)196], incorporated in the
annexes;
• By the report on the guidelines for conducting advance pricing
arrangements under the mutual agreement procedure, adopted by
the Committee on Fiscal Affairs on 30 June 1999
[DAFFE/CFA(99)31] and noted by the Council on 28 October
1999 [C(99)138], incorporated in the annexes;
• By the report on the transfer pricing aspects of business
restructurings, adopted by the Committee on Fiscal Affairs on 22
June 2010 [CTPA/CFA(2010)46] and approved by the Council on
22 July 2010 [Annex I to C(2010)99], incorporated in Chapter IX.
OECD TRANSFER PRICING GUIDELINES © OECD 2017
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– FOREWORD

In addition, these Guidelines have been modified:
• By an update of Chapter IV, adopted by the Committee on Fiscal
Affairs on 6 June 2008 [CTPA/CFA(2008)30/REV1] and an update
of the Foreword and of the Preface, adopted by the Committee on
Fiscal Affairs on 22 June 2009 [CTPA/CFA(2009)51/REV1],
approved by the Council on 16 July 2009 [C(2009)88];
• By a revision of Chapters I-III, adopted by the Committee on Fiscal
Affairs on 22 June 2010 [CTPA/CFA(2010)55] and approved by
the Council on 22 July 2010 [Annex I to C(2010)99]; and
• By an update of the Foreword, of the Preface, of the Glossary, of
Chapters IV-VIII and of the annexes, adopted by the Committee on
Fiscal Affairs on 22 June 2010 [CTPA/CFA(2010)47] and
approved by the Council on 22 July 2010 [Annex I to C(2010)99].
• By a revision of Section E on safe harbours in Chapter IV, and the
addition of another Annex to this Chapter including three sample
Memoranda of Understanding to establish bilateral safe harbours,
adopted by the Committee on Fiscal Affairs on 26 April 2013
[CTPA/CFA(2013)23] and approved by the Council on 16 May
2013 [C(2013)69].
• By a revision of Chapters I, II, V-VIII by the Report on BEPS
Actions 8-10 Aligning Transfer Pricing Outcomes with Value
Creation and the Report on BEPS Action 13, Transfer Pricing
Documentation and Country-by-Country Reporting, endorsed by
the Council on 1 October 2015 [C(2015)125/ADD8 and
C(2015)125/ADD11].
• By a revision of Chapter IX adopted by the Committee on Fiscal
Affairs on 31 December 2016 [CTPA/CFA/NOE2(2016)76] and
approved by the Council on 3 April 2017 [C(2017)37].
• By an update of the Foreword, of the Preface, of the Glossary, of
Chapters I-IV and of the annexes, adopted by the Committee on
Fiscal Affairs on 19 May 2017 [CTPA/CFA/NOE2(2017)21].
These Guidelines will continue to be supplemented with additional guidance
addressing other aspects of transfer pricing and will be periodically
reviewed and revised on an ongoing basis.
OECD TRANSFER PRICING GUIDELINES © OECD 2017
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TABLE OF CONTENTS –

Table of Contents
Foreword .............................................................................................................. 3
Preface................................................................................................................ 15
Abbreviations and Acronyms .......................................................................... 21
Glossary ............................................................................................................. 23
Chapter I: The Arm's Length Principle .......................................................... 33
A. Introduction .......................................................................................... 33
B. Statement of the arm’s length principle ............................................... 35
B.1 Article 9 of the OECD Model Tax Convention ............................. 35
B.2 Maintaining the arm’s length principle as the international
consensus ....................................................................................... 38
C. A non-arm’s-length approach: global formulary apportionment ......... 39
C.1 Background and description of approach ....................................... 39
C.2 Comparison with the arm's length principle ................................... 39
C.3 Rejection of non-arm's-length methods.......................................... 43
D. Guidance for applying the arm’s length principle................................ 43
D.1. Identifying the commercial or financial relations .......................... 43
D.2. Recognition of the accurately delineated transaction ..................... 77
D.3. Losses ............................................................................................. 80
D.4. The effect of government policies .................................................. 81
D.5. Use of customs valuations .............................................................. 83
D.6. Location savings and other local market features .......................... 84
D.7. Assembled workforce..................................................................... 88
D.8. MNE group synergies .................................................................... 89
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– TABLE OF CONTENTS

Chapter II:Transfer Pricing Methods ............................................................. 97
Part I: Selection of the transfer pricing method ............................................ 97
A. Selection of the most appropriate transfer pricing method to
the circumstances of the case ............................................................... 97
B. Use of more than one method ............................................................ 100
Part II: Traditional transaction methods ..................................................... 101
A. Introduction ....................................................................................... 101
B. Comparable uncontrolled price method ............................................... 101
B.1 In general...................................................................................... 101
B.2 Examples of the application of the CUP method ......................... 104
C. Resale price method .......................................................................... 105
C.1 In general...................................................................................... 105
C.2 Examples of the application of the resale price method ............... 110
D. Cost plus method............................................................................... 111
D.1 In general...................................................................................... 111
D.2 Examples of the application of the cost plus method ................... 116
Part III: Transactional profit methods ......................................................... 117
A. Introduction ........................................................................................ 117
B. Transactional net margin method ....................................................... 117
B.1 In general...................................................................................... 117
B.2 Strengths and weaknesses ............................................................ 118
B.3 Guidance for application .............................................................. 120
B.4 Examples of the application of the transactional net
margin method ............................................................................. 132
C. Transactional profit split method ....................................................... 133
C.1 In general...................................................................................... 133
C.2 Strengths and weaknesses ............................................................ 133
C.3 Guidance for application .............................................................. 135
D. Conclusions on transactional profit methods ..................................... 145
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TABLE OF CONTENTS –

Chapter III: Comparability Analysis ............................................................ 147
A. Performing a comparability analysis.................................................. 147
A.1 Typical process ............................................................................ 148
A.2 Broad-based analysis of the taxpayer’s circumstances ................ 149
A.3 Review of the controlled transaction and choice of the
tested party ................................................................................... 149
A.4 Comparable uncontrolled transactions ......................................... 155
A.5 Selecting or rejecting potential comparables................................ 159
A.6 Comparability adjustments ........................................................... 162
A.7 Arm’s length range ....................................................................... 163
B. Timing issues in comparability .......................................................... 166
B.1 Timing of origin ........................................................................... 166
B.2 Timing of collection ..................................................................... 167
B.3 Valuation highly uncertain at the outset and
unpredictable events ..................................................................... 167
B.4 Data from years following the year of the transaction ................. 168
B.5 Multiple year data ........................................................................ 168
C. Compliance issues .............................................................................. 169
Chapter IV: Administrative Approaches to Avoiding and Resolving
Transfer Pricing Disputes .............................................................................. 171
A. Introduction ........................................................................................ 171
B. Transfer pricing compliance practices ............................................... 172
B.1 Examination practices .................................................................. 173
B.2 Burden of proof ............................................................................ 174
B.3 Penalties ....................................................................................... 176
C. Corresponding adjustments and the mutual agreement procedure:
Articles 9 and 25 of the OECD Model Tax Convention .................... 180
C.1 The mutual agreement procedure ................................................. 180
C.2 Corresponding adjustments: Paragraph 2 of Article 9 ................. 182
C.3 Concerns with the procedures ...................................................... 184
C.4 Guidance, approaches and actions taken to address concerns
with the mutual agreement procedure .......................................... 186
C.5 Secondary adjustments ................................................................. 195
D. Simultaneous tax examinations .......................................................... 199
D.1 Definition and background ........................................................... 199
D.2 Legal basis for simultaneous tax examinations ............................ 200
OECD TRANSFER PRICING GUIDELINES © OECD 2017