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Safe Harbours in Transfer Pricing

Safe Harbours in Transfer Pricing
18 Sep 2012
The OECD's Committee on Fiscal Affairs has launched a new project to address the administrative aspects of transfer pricing.

The OECD's Committee on Fiscal Affairs launched a new project on 9 March 2011 that addresses the administrative aspects of transfer pricing. This OECD study includes the review of the existing guidance pertaining to safe harbour transfer pricing. The present Safe Harbour provisions go back to 1995, but the OECD is now reviewing that guidance with a view toward updating its experience since that 1995 date.

Taxand is in agrreement with the key principles set out in the discussion draft:

  • Safe harbours can reduce the administrative burden on businesses and administrations
  • The appropriateness of safe harbours is most apparent when directed at low risk situations
  • Many administrations apply safe harbours in practice with success

We would add that in the current environment, many businesses have already started to reduce the level of economic support in place for low risk transactions, and are adopting reasonable 'non-statutory' safe harbour positions or generally acceptable norms.

In Taxand's response to the consultation paper, we discuss:

  • Operation in practice and concerns over the arm's length principle
  • Additional concerns not raised in sections E. 4.1 - E.4.4
  • Tax arbitrage opportunities



Taxand's Take

Taxand's response to this draft can be summarised in three points:

1. The concern about safe harbours leading to non-arm's length results will have to be accepted should these harbours be introduced. The operation of safe harbour legislation may be facilitated by an approach similar to that already taken for exemptions in local legislation. 

2. Taxand recommends a grandfathering period to ensure that businesses that are below safe harbour prices can have recourse. Such a period may also facilitate successful operation of the legislation

3. "inappropriate tax planning opportunities" should be replaced with "artificial tax arrangements" to be consistent with recognised international case law principles


Taxand's Take Author