Thought leadership › Response programme
OECD discussion draft on proposed modifications to Chapter VII of the TP Guidelines - (BEPS Action 10)
On 3 November 2014, the OECD published a discussion draft concerning proposed modifications to Chapter VII of the Transfer Pricing Guidelines relating to low value-adding intra-group services. This discussion draft will direct the OECD in terms of BEPS Action 10 concerning the development of transfer pricing rules to provide protection against common types of base eroding payments, such as management fees and head office expenses. Taxand is honoured to provide combined feedback from around the world on the discussion draft with respect to Action 10 of the BEPS Action Plan and the proposed modifications to Chapter VII of the Transfer Pricing Guidelines relating to low value-adding intra-group services.
The modification of Chapter VII of the Transfer Pricing Guidelines in order to adapt its contents to the current situation of MNE groups, as well as the establishment of a simplified approach for the so called low value adding intra-group services, is a relevant initiative of the BEPS Action Plan, which Taxand supports. This discussion draft reduces the scope for erosion of the tax base through excessive management fees and head office expenses by proposing an approach which identifies a wide category of common intra-group services commanding a very limited profit mark-up on costs, applies a consistent allocation key for all recipients, and provides greater transparency through specific reporting requirements.
Taxand's response deals with:
Section B1: determining whether intra-group services have been rendered
- Benefits test and evidence of the services rendered
- Interaction between services and transfers of intangibles (or the licensing thereof)
Section B2: determining an arm´s length charge
- Comparability analysis
- Methods to determine an arm’s length remuneration
- Calculating the arm´s length compensation
- Cost base determination
Section D: low value adding intra-group services
- Elective nature
- Definition of low value-adding intra-group services
- Application of the profit mark-up
- Documentation and reporting
We would like to salute the efforts of the OECD Committee of Fiscal Affairs for its continual and vast work on laying down the cornerstones for the ambitious and comprehensive Action Plan aimed at addressing base erosion and profit shifting in an open format that allows all stakeholders to provide their views. We appreciate this opportunity to provide comments to the OECD Committee of Fiscal Affairs and would be pleased to discuss this further and to participate in any further discussion on these matters.