On 26 February 2024 the OECD published the responses received on the proposed guidance to support developing countries in addressing risks of base erosion and profit shifting in pricing lithium.

Comments were received from eleven government and professional organisations and transfer pricing practitioners. Some of the comments were of a technical nature concerning the by-products and waste products of processing, however some more general comments were made on pricing of lithium.

The response from Deloitte suggested that the text of the framework for lithium should confirm that the guidance does not replace or alter the OECD Transfer Pricing Guidelines interpretation of Article 9 of the OECD Model. Deloitte also pointed out the guidance assumes that a mining entity would automatically have access to the wider group’s market intelligence and knowledge, but this does not appear to be consistent with the OECD Guidelines. This assumption may not align with the separate entity principle if there is value generated by operations elsewhere within the business or by third parties.

Deloitte also recommended that further guidance should be included on how the lithium market differs from other mineral markets and the effect this could have on arm’s length pricing. Relevant differences include the reduced liquidity of the lithium market compared to some other mineral markets; the potential changes to market dynamics as the electric vehicle market matures and more producers enter the market; and technological developments that could change the way lithium is used in battery and industrial grade products.

ICMM (the International Council on Mining and Metals) noted that the guidance advocates an approach that is not entirely consistent with the arm’s length standard as set out in the OECD Transfer Pricing Guidelines. Their view was that following the guidance could result in an outcome that is not in line with the laws or treaties relating to pricing between related parties. ICMM noted that the specific factors to be considered when comparing the controlled transaction to a quoted price are listed in the guidance as a complete and definitive list, rather than a suggestion of some of the characteristics to consider, as in the OECD guidelines. They recommended that, in comparing controlled transactions to quoted prices, consideration should also be given to premiums or discounts and to risks such as geographical/sovereign risk and currency risk.

ICMM also noted that the transfer pricing framework set out in the guidance focuses only on three economically relevant characteristics or comparability factors (physical characteristics of the product, economic circumstances and contractual terms) out of the five factors set out in the OECD Guidelines. When delineating a transaction, consideration should be given to all factors, and depending on the transaction itself, the taxpayer should determine which are economically relevant.

The Transfer Pricing Commission of the Mexican Institute of Public Accountants noted that due to its unique properties and lack of alternatives, the global demand for lithium is predicted to rise by over 40 times by the year 2040. As current methods of extraction and processing are slow and resource intensive, technology development is important. The countries with the largest lithium reserves may not be the countries that develop the relevant technology, so there is a need for guidance on how MNE’s profit should be allocated to the entities involved in performing DEMPE functions. There should also be detailed guidance on how to clearly delineate the environmental risks involved in the industry (i.e., carbon emissions, land degradation and water contamination), and which related party would assume the risks.

The response from a group of transfer pricing practitioners from the TPGIG transfer pricing network suggested that the paper could acknowledge that alternatives or adjustments to the market reference price may be appropriate to reflect any contributions of value by related parties in the value chain. In relation to this, the TPGIG practitioners also suggested that that the OECD should include guidance with respect to the types of functions, assets, and risk contributions that a multinational enterprise should consider when undertaking an analysis to accurately delineate and evaluate the arm’s length conditions with respect to related-party sales and marketing arrangements. Guidance could be included on the types of functions, assets, and risks that should be assessed in the context of related-party sales and marketing, to appropriately characterise the related-party transaction.