The OECD recently released the report on Action 8 of the Action Plan on 16 September 2014 which is based on Erosion and Profit Shifting (AP-BEPS). The details report comprises guidance on the Transfer Pricing aspects of intangibles.
It covers final revisions to Chapters I, II and VI of the OECD Transfer Pricing Guidelines (the Guidelines) and changes that:
– clarify the definition of intangibles under the Guidelines;
– provide guidance on identifying transactions involving intangibles; and
– provide supplemental guidance for determining arm’s length conditions for transactions involving intangibles.
These final modifications to the Guidelines also contain guidance on the transfer pricing treatment of local market features and corporate synergies. The guidance is supplemented with numerous examples illustrating the application of the principles contained in the revised text of the Guidelines. However, this part of the Action 8 will be finalized in 2015 in connection with other related BEPS work. The sections of the report setting out interim guidance include:
- Ownership of intangibles (sections B.1 and B.2 of Chapter VI);
- intangibles whose valuation is uncertain at the time of the transaction (section D.3 of Chapter VI);
- use of other methods (paragraph 2.9);
- the application of profit split methods (paragraphs 6.145 to 6.149); and
- certain examples relating to the foregoing provisions.
The report proposes limited changes of Chapters I and II of the Guidelines with respect to the use of methods. Also, the report notes that the language contained in paragraph 2.9 and languages will be revised and updated as part of the 2015 transfer pricing work on BEPS.
Details changes will take account of the guidance on the application of valuation techniques in section D of Chapter VI and in Chapter IX. Further on, consideration will be given to whether paragraph 2.9 should be modified to reflect other guidance on transfer pricing methods and/or special measures that may be adopted in connection with the work on BEPS expected to be finalized in 2015. Regarding Chapter IV (special considerations for intangibles), the report proposes deleting and restarting the whole chapter. Amongst others, the new definition of the term “marketing intangible” is provided in the report.
Lastly, the report concludes that it is the intention of the countries involved in the BEPS project to complete the sections of the revised intangibles guidance during 2015 in conjunction with the BEPS work on risk, characterization and hard to value intangibles.
