OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2009
OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provides guidance on the application of the "arm's length principle" for valuation for tax purposes of cross-border transactions between associated enterprises. In a global economy where multinational enterprises (MNEs) play a prominent role, governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdiction and that the tax base reported by MNEs in their country reflects the economic activity undertaken therein. For taxpayers, it is essential to limit the risks of economic double taxation that may result from a dispute between two countries on the determination of the arm’s length remuneration for their cross-border transactions with associated enterprises.
The OECD Transfer Pricing Guidelines clarifies these issues and were originally approved by the OECD Council in 1995. In this 2009 edition, some amendments have been made to Chapter IV, primarily to reflect the adoption, in the 2008 update of the Model Tax Convention, of a new paragraph 5 of Article 25 dealing with arbitration, and of changes to the Commentary on Article 25 on mutual agreement procedures to resolve cross-border tax disputes.
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Other Methods
Part B of this chapter provides a discussion of other approaches that might be used to approximate arm's length conditions when traditional transaction methods cannot be reliably applied alone or exceptionally cannot be applied at all. The other approaches are referred to in the discussion here as "transactional profit methods," i.e. methods that examine the profits that arise from particular transactions among associated enterprises. The only profit methods that satisfy the arm's length principle are those that are consistent with the profit split method or the transactional net margin method as described in these Guidelines. In particular, so-called "comparable profits methods" or "modified cost plus/resale price methods" are acceptable only to the extent that they are consistent with these Guidelines. Part C discusses an approach that cannot reliably approximate arm's length conditions: global formulary apportionment. OECD member countries reiterate their support for the arm's length principle and so reject the use of global formulary apportionment.
Also available in: French
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