In the transfer pricing context, business restructurings are defined as the cross-border redeployment by a multinational enterprise (“MNE”) of functions, assets and/or risks. They are not a new phenomenon as MNEs constantly need to adapt their business models to a dynamic commercial environment. They can involve a transfer of something of value (e.g. assets) and/or the termination or substantial renegotiation of existing commercial arrangements within an MNE group. They can have a dramatic impact on the allocation of an MNE’s taxable profits among the countries in which it operates.
In 2005, in recognition of the widespread phenomenon of business restructurings among MNEs, of the tax issues they raise, and of the significant uncertainty arising for business as well as for governments and risks of double taxation or double non taxation due to the lack of international guidance in this area, the OECD started a project to develop guidance on the transfer pricing aspects of business restructurings.
This project benefitted from significant input from the business community. A public invitation to comment was released on the Internet. A Business Advisory Group was set up, consisting of a dozen representatives from the business community. A discussion draft was released in September 2008, which attracted detailed contributions from thirty-seven organisations. These contributions were discussed by the OECD and commentators during a two-day consultation meeting in June 2009.
This work resulted in a new Chapter IX being incorporated into the Transfer Pricing Guidelines. Chapter IX is a consensus document that was approved by the Council of the OECD on 22 July 2010. It contains guidance on the transfer pricing aspects of risk allocations; the determination of an arm’s length compensation for the restructuring itself and for post-restructuring transactions; and the recognition of the actual restructuring transactions undertaken. The OECD released a response to the main public comments received on the September 2008 discussion draft.