On 20 January 2022 the OECD released the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The latest edition of the guidelines includes changes made to the 2017 edition by reports issued by the OECD in the past few years.
Profit splits
The final report on Revised Guidance on the Transactional Profit Split Method, approved by the OECD/G20 Inclusive Framework on 4 June 2018, has been incorporated into Chapter II of the guidelines and Annexes to that chapter. The report discusses the strengths and weaknesses of the transactional profit split method. The profit split may be appropriate where multiple parties are making unique and valuable contributions, where the contributions are not comparable to contributions made by independent parties in comparable circumstances and where the use of the intangibles in business operations is a key source of actual or potential economic benefits. The transactional profit split method can also be applicable where there are highly integrated operations for which a one-sided method would not be suitable. The OECD notes that another strength of the method is that all the parties to the transaction are directly evaluated in determining the pricing. Their contributions are specifically identified, and their relative values measured in determining the arm’s length compensation. One potential weakness of the method relates to the difficulties that arise in applying the method.
Hard-to-value intangibles
The report on Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles, approved by the OECD/G20 Inclusive Framework on BEPS on 4 June 2018, has been incorporated as Annex II to Chapter VI. The guidance includes a number of examples to clarify the application of the HTVI approach in different scenarios and the interaction between the HTVI approach and access to the mutual agreement procedure.
Financial transactions
On 11 February 2020 the OECD released the final report entitled Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10, containing the material to be included in the guidelines. This has been included in a new Chapter X and some related material is in a new section D.1.2.2. of Chapter 1. The guidance follows the BEPS approach of accurate delineation of the actual transaction to arrive at the amount of debt to be priced. This requires identification of the economically relevant characteristics of the financial transaction by examining the comparability factors including the commercial or financial relations between the parties, the conditions and the economically relevant circumstances attaching to the commercial or financial relations. The report examines various issues around the pricing of financial transactions, including treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance. There is also guidance on how to determine a risk-free rate of return and a risk-adjusted rate of return.
Other
Changes have been made to other parts of the OECD guidelines to ensure consistency with the new material. The foreword, preface and glossary have also been updated.
