OECD: Comments received on draft HTVI implementation guidance

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On 5 July 2017 the OECD published comments received in relation to the BEPS discussion draft on the implementation guidance on Hard-to-Value Intangibles (HTVIs). The comments received focus on a range of points including the uncertainty arising for taxpayers, the risk of double taxation, use of the profit split method and the need for more examples in the guidance.


Comments refer to the tax uncertainty for business that could result for a number of years after a potential HTVI transaction. The discussion draft leaves a lot of room for interpretation. The approach involves a discretionary interpretation by the tax authorities of the suitableness of the valuation cases.

The first two examples in the draft guidance assume that the taxpayer was unable to demonstrate that the original valuation took into account the possibility that the sales would reach the levels that they subsequently reached, and the taxpayer could not demonstrate that those levels of sales were reached owing to an unforeseen development. Comments suggest that more guidance is required on the steps to be taken by taxpayers in considering various future sales scenarios that would be reasonably foreseeable when the transaction takes place.

Guidance would also be required on the evidence tax administration should consider acceptable to show that the future scenarios have been adequately taken into consideration at the time of the transaction. Examples on specific situations that would constitute unforeseen developments could help taxpayers. There should be some kind of limitation to prevent tax administrations being given too much scope to challenge HTVI transactions with the benefit of hindsight.


One commentator indicated that the examples given in the OECD guidance focus on pharmaceutical companies and could give the impression that all drug development, as it involves a long incubation period, would fall within the scope of the HTVI provisions. However in the case of a compound transferred at an early stage of development the subsequent costs of development would be borne by the transferee and this could be less likely to be a situation where HTVI provisions apply to the transfer. The situation of pharmaceuticals could therefore be clarified more so there is no automatic assumption that all drug development is within the scope of HTVI.

The examples given in the guidance could include a wider range of industries so they do not focus so much on pharmaceuticals. One commentator suggests that examples could be included from the digital industry because the results of an HTVI transfer in that industry can be affected by other factors and in some cases results could fluctuate without much consistency.

One commentator pointed out that the examples given in the guidance do not present the full picture because they just look at situations when ex post provisions apply, without setting out guidance on what sort of ex ante evidence is sufficient to prevent the tax authority taking ex post considerations into account. The question arises as to who ultimately decides if the evidence provided by the taxpayer is sufficient to stop the tax authority looking at ex post considerations; and what tests will be applied to determine if the evidence provided by the taxpayer was adequate.

Risk of double taxation

One commentator points out that the method described in the guidance could lead to double taxation and to an increase in tax disputes. Double taxation could also arise because the approach does not provide any course of action for taxpayers if due consideration of the ex post outcomes shows that the transfer price was too high.

Another consideration referred to in comments was that not all countries will implement the HTVI guidance and there is a risk of double taxation where this guidance is used in the country of one party to a transaction but not in the other country. This could perhaps be resolved by requiring a high standard of dispute resolution practices if the HTVI approach is to be used.

Use of the profit split method

The observation was made by one commentator that the profit split method could be applied in the case of this type of intangible property transfer. Work on the profit split method is ongoing as part of the BEPS project. The examples in the HTVI guidance could therefore include a note that the profit split is an additional approach that could be considered when dealing with risk resulting from uncertainty in valuing the intangible property.


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