Transfer pricing

More on Transfer Pricing


Transfer Pricing Guidelines

The Guidelines were first issued in 1979 and revised and updated in 1995. However, work continues on revising the Guidelines.

  • In April 1996 new chapters were published looking at intangibles and services.
  • In August 1997 a new chapter on cost contribution arrangements (CCAs) was issued.
  • In February 1998 Annexes were published containing practical examples and procedures for monitoring the implementation of the guidelines.
  • In October 1999 an Annex was published which covered the Guidelines for conducting advance pricing arrangements under the mutual agreement procedure ("MAP APAs")

Current work focuses on four main areas.

First, providing guidance on how to apply the general principles of the guidelines to complex situations, such as permanent establishments, financial services, global trading and thin capitalisation.

Second, monitoring the practical implementation of the Guidelines and amending and updating the existing guidance given in the light of this monitoring. The business community, via the Business and Industry Advisory Committee of the OECD (BIAC), is associated with this activity. One outcome of the monitoring process is the development of further practical examples to illustrate the application of the arm's length principle. The extent to which the existing guidance on transfer pricing can be applied to electronic commerce is also being examined.

Third, the improvement of administrative procedures. In october 1999 an Annex to the Guidelines was published that provides guidance on undertaking advance pricing arrangements, especially under the mutual agreement procedure (MAP APAs). Work continues on examining ways (including use of arbitration) of improving the working of the Mutual Agreement Procedure.

Fourth, encouraging countries outside the OECD to associate themselves with the Guidelines. This is undertaken by means of multilateral seminars, often with appropriate regional partners, which discuss transfer pricing issues and explain the guidelines to tax officials from non-member countries.

Cost Contribution Arrangements

The OECD has released the last of eight core chapters to be added to its 1995 publication Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. This Chapter covers the subject of cost contribution arrangements under the arm's length principle, which is the agreed international standard governing related party cross-border transactions. The Chapter represents the agreement of all OECD Member countries to recognise cost contribution arrangements for tax purposes, and to follow uniform principles in dealing with these arrangements in the international context.

The Chapter defines cost contribution arrangements (CCAs), noting that although such arrangements are most frequently encountered in the R&D area, they are not limited to such activities. Under the Chapter, a CCA can be used by business enterprises to share the costs and risks of developing, producing or obtaining any assets, services, or rights. A CCA will satisfy the arm's length principle provided that each participant's share of the overall contributions to the subject activity is consistent with the participant's proportionate share of the overall benefits expected to be received.

The Chapter provides guidance on determining the participants of a CCA, how their respective contributions should be valued, and whether the allocation of contributions is appropriate in light of the expected benefits to be received. The tax treatment of contributions and other payments made under a CCA is also discussed.

This Chapter of the OECD's Transfer Pricing Guidelines completes the core work begun in 1993 to provide an international consensus on the pricing of cross-border transactions among related parties. While the Chapter is being issued initially as an update for insertion into the loose-leaf Guidelines, OECD is expected now to publish a paperback version of the core chapters. Work will continue at OECD on new chapters addressing special topics such as permanent establishments and issues affecting the financial sector.


The OECD has also been given an explicit monitoring role. This covers the application of countries' transfer pricing rules and their consistency with the guidelines, cases where mutual agreement proceedings have not reached a satisfactory conclusion, the use of advance pricing arrangements (APA's) and the frequency with which profits methods are used by tax administrations.

The February 1998 update contains details of procedures for monitoring the application of the guidelines and the role of the business community in that process.

Advance Pricing Arrangements

In October 1999, the OECD published an update to the1995 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter referred to as the "Guidelines"). This update is in the form of a new Annex to the Guidelines that provides guidance on conducting advance pricing arrangements under the mutual agreement procedure (MAP APAs). The Annex becomes an integral part of the Guidelines as shown by the decision of the OECD council on 28 October to amend its original recommendation concerning the Guidelines in 1995 so as to incorporate the new guidance in this Annex. It therefore has the same status as the existing eight Chapters of the Guidelines.

Discussion Draft on Attributing Profits to a Permanent Establishment

Currently, there is a lack of consensus amongst OECD Member countries as to how profits should be attributed to a permanent establishment (PE). As a first step in remedying this situation a working hypothesis has been developed as to the preferred approach for attributing profits to the PE. The basis for the working hypothesis is to examine how far the approach of treating the PE as a hypothetical distinct and separate enterprise can be taken and how the guidance in the OECD Transfer Pricing Guidelines could be applied, by analogy, to attribute profits to a PE. This discussion draft contains the results of testing the working hypothesis in general (Part I) and to PEs of banks (Part II). Public comments are invited in order to assist in the development of an OECD consensus on the attribution of profits to a PE.


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