The Resource [Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]

[Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]

Label
[Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]
Title
[Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]
Subject
Language
eng
Summary
QUESTIONS: As an outcome of the BEPS Action Plan, guidance on risk in Chapter I of the OECD Transfer Pricing Guidelines has been substantially expanded, while incorporating the new emphasis on delineation of the actual transaction and recognition of the accurately delineated transaction. The guidance on risk is now included as part of the description of the functional analysis, with the provision of a new analytical framework for risks. Fundamental importance is attributed to accurate delineation of the actual transaction; contracts remain the starting point for the analysis but are reviewed against other economically relevant characteristics of the transaction reflected in the conduct of the parties. Nonrecognition builds on the existing notion of commercial rationality: in circumstances where the transaction between associated enterprises lacks commercial rationality, the guidance continues to authorise the disregarding of the arrangement for transfer pricing purposes. Control over risk and the financial capacity to assume the risk are given equal footing as criteria for assessing the assumption of risk. Risks contractually assumed by a party that cannot in fact exercise meaningful and specifically defined control over the risks, or does not have the financial capacity to assume the risks, will be allocated to the party that does exercise such control and does have the financial capacity to assume the risks. In line with this, specific provisions address the level of returns to funding provided by a capitalrich group entity, where those returns do not correspond to the level of activity undertaken by the funding company. The amended Transfer Pricing Guidelines distinguish between (a) a case where the funder can evaluate the funding proposition (for which the return should be a riskadjusted return on capital) and (b) where there is no such capacity, in which case the return should be a riskfree return. Therefore, taking into account relevant statute, guidance, case law and practice in your jurisdiction: 1. To what extent are the new emphasis on delineation of the actual transaction and the focus on conduct in assessing intragroup contracts likely to force a change in the way MNEs structure and document their transfer pricing? In what way has the tax administration sought proof of genuine conduct in the past and how is this likely to change? Is the incidence of transfer pricing audits likely to go up? 2. How will the new guidance on control of risk and financial capacity to assume risk affect the way in which multinational groups structure their operations? Does the tax administration have a history of challenging the level of returns to entities that only control risk and does the new guidance increase the likelihood of this? At what point in time would the taxpayer be required to have the financial capacity to assume risk? 3. To what extent and on what basis has the tax administration applied nonrecognition rules in the past? How is the guidance on commercial rationality likely to affect the tax administration's application? Do you expect it to lead to more occasions of nonrecognition?
Citation source
In: Transfer pricing forum. - Arlington. - Vol. 6 (2015), no. 3 (November) ; 68 p
Geographic coverage
International
Language note
English
http://library.link/vocab/subjectName
  • OECD
  • OECD Transfer Pricing Guidelines
  • transfer pricing
  • BEPS Project (OECD)
  • risk
  • control
Label
[Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]
Instantiates
Publication
Label
[Guidance on risk in chapter 1 of the OECD Transfer Pricing Guidelines]
Publication

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