On July 10, 2017, the OECD released its 2017 version of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“TP Guidelines”), which provide guidance on the application of the arm’s length principle.
The TP Guidelines define the “arm’s length principle” as “the international standard that OECD member countries have agreed should be used for determining transfer prices for tax purposes…. where conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”
This edition of the TP Guidelines reflects the 2015 BEPS Reports, specifically, Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting). It also includes revised guidance on safe harbors to relieve compliance burdens and provide taxpayers with greater certainty. This edition also includes consistency changes, which were approved by the OECD’s Committee on Fiscal Affairs on May 19, 2017.
The TP Guidelines incorporate the following revisions of the 2010 edition:
- Amendments based on Actions 8-10 and 13, which revised the guidance in Chapters I, II, V, VI, VII and VIII, and were approved by the OECD Council and incorporated into the Transfer Pricing Guidelines in May 2016.
- Revisions to Chapter IX to conform the guidance on business restructurings to the revisions introduced by the 2015 BEPS Reports on Actions 8-10 and 13. These conforming changes were approved by the OECD Council in April 2017.
The TP Guidelines are also intended to provide guidance in the resolution of transfer pricing cases in mutual agreement proceedings between OECD member countries and in certain arbitration proceedings.