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9 September 2009 - On 7 September 2009, the OECD released the 2009 edition of its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter “TP Guidelines”).
The TP Guidelines provide guidance on the application of the arm's length principle to the pricing, 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.
Since their adoption by the OECD Council in 1995, the TP Guidelines have been under constant monitoring by the OECD. They were complemented in 1996-1999 with guidance on intangibles, cross-border services, cost contribution arrangements and advance pricing arrangements. In this 2009 edition, amendments were 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. References to good practices identified in the Manual for Effective Mutual Agreement Procedures were included and the Preface was updated to include a reference to the Report on the Attribution of Profits to Permanent Establishments adopted in July 2008.
The OECD is currently undertaking an important further update to the TP Guidelines, focusing on comparability issues and on the application of transactional profit methods. A discussion draft was released for public comment on 9th September 2009.
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