OECD: 2017 edition of the transfer pricing guidelines issued

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On 10 July 2017 the OECD issued the 2017 edition of the OECD transfer pricing guidelines. The amendments made in the latest edition of the guidelines mainly arise from the transfer pricing aspects of the conclusions and recommendations of the OECD/G20 project on base erosion and profit shifting (BEPS).

BEPS actions 8 to 10

The latest edition of the guidelines includes changes arising from BEPS actions 8 to 10 on aligning transfer pricing outcomes with value creation. The Guidelines now emphasise that a functional and risk analysis must be performed and other comparability factors must be examined in arriving at the correctly delineated transaction.

The risk analysis involves identification of the contractually agreed risks and performing an analysis of the assumption and management of specific risks of the related parties.  The taxpayer must consider if the contractual terms have been followed in relation to specific risks. This involves looking at whether the parties follow the contractual terms and whether the party assuming the risk exercises control over the risk and has the financial capacity to assume the risk.

Where the conduct of the parties does not conform to the contractual allocation of risk this must be taken into account. Guidance is included on allocation of risk where the party assuming the risk does not control the risk or does not have the financial capacity to assume the risk. The whole process of analyzing risk must be adequately documented.


The new edition of the guidelines contains changes relating to BEPS action 13 on transfer pricing documentation and country by country reporting. The guidance requires a three-tiered approach involving the preparation of a master file with information on all relevant group members; a local file with material transactions of the local taxpayer; and a template for reporting income, earnings, tax and other economic data on a country by country basis.

The new guidance suggests that the objectives of transfer pricing documentation are to give appropriate consideration to transfer pricing requirements in setting prices and report the income from transactions; give the tax administration the required information for a transfer pricing risk assessment; and provide the tax administration with useful information to use in an audit of transfer pricing of entities in the jurisdiction. Well prepared documentation can create a culture of compliance and the tax rules could encourage this by requiring contemporaneous documentation to be prepared and by putting in place an adequate penalty regime.  Countries should control compliance costs by keeping documentation requirements reasonable and focusing on material transactions.

Safe harbours

Amended guidance on safe harbours is included in Chapter IV of the guidelines. The new guidance is less negative towards the idea of safe harbours than the previous text of the guidelines, but still takes a cautious approach. The guidelines now acknowledge that the existence of safe harbours may allow taxpayers to save compliance costs. A safe harbour also allows taxpayers to obtain certainty that less complex or lower risk transactions will not be subject to a transfer pricing adjustment. At the same time the tax administration may also be in a position to save time and this may be valuable in allowing tax auditors to concentrate on higher risk transactions. The cost savings could be important for developing country tax administrations that are attempting to deal with complex transfer pricing issues using limited resources in terms of personnel.

The guidance suggests that tax authorities take special care on the adoption of safe harbours, especially unilateral safe harbours. The revised section E advises that bilateral or multilateral safe harbours negotiated between Competent Authorities may be the best route if safe harbours are adopted, and provides examples of Memoranda of Understanding that could be used as the basis of bilateral or multilateral agreements.

Business restructurings

Amendments have been made to the guidance on business restructurings to align this guidance with the changes introduced by the BEPS recommendations on actions 8 to 10 and action 13. The general guidance on business restructurings remains the same except where they are affected by the changes to other parts of the Guidelines.


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