News and Insights

OECD Incorporates BEPS into its Transfer Pricing Guidelines

Tax Development May 23, 2016

Introduction

On May 23, 2016, the OECD Council approved amendments to the existing OECD TP Guidelines. These amendments are based on the endorsed Base Erosion and Profit Shifting (BEPS) project, covering the following two reports:

  1. BEPS Report on Actions 8-10 "Aligning Transfer Pricing Outcomes with Value Creation"; and
  2. BEPS Report on Action 13 "Transfer Pricing Documentation and Country-by-Country Reporting."

The incorporation of the BEPS reports provides further clarity on the status of the BEPS changes in relation to the TP Guidelines.

Current Amendments

The specific changes are as follows:

  • The current provisions of Chapter I, Section D of the TP Guidelines are removed entirely and replaced by a new guidance;
  • Paragraphs are added to Chapter II of the TP Guidelines after paragraph 2.16;
  • A new paragraph is inserted after paragraph 2.9;
  • The current provisions of Chapter V of the TP Guidelines are removed entirely and replaced by new guidance and annexes;
  • The current provisions of Chapter VI of the TP Guidelines and the annex to this chapter are removed entirely and replaced by new guidance and annex;
  • The current provisions of Chapter VII of the TP Guidelines are removed entirely and replaced by a new guidance; and
  • The current provisions of Chapter VIII of the Transfer Pricing Guidelines are removed entirely and replaced by a new guidance.

Future Amendments

Further efforts are currently being undertaken to amend Chapter IX "Transfer Pricing Aspects of Business Restructurings." It is expected that the Working Group will be inviting interested parties to review and provide comments on the confirming changes to Chapter IX. The changes are expected to be approved later in 2016.

According to the OECD, until then, the provisions of the TP Guidelines should be interpreted to be consistent with those provisions of the TP Guidelines, which have been amended by the BEPS Report on Actions 8-10 and BEPS Report on Action 13, and in case of perceived inconsistencies, the modified provisions prevail.

The OECD intends to publish a new edition of its TP guidelines by the end of 2016, after all the amendments are complete.