OECD
Transfer Pricing Guidelines for
Business Restructurings
and Intangibles
Martin Busenhart , Tax Partner
7th CIS Local Counsel Forum
Yerevan, 8 June 2012
Overview
– Introduction OECD Guidelines
– Transfer pricing aspects of business restructurings
(Chapter XI)
– Revised transfer pricing aspects of intangibles
(Chapter VI)
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Introduction OECD Guidelines
– Art. 9 OECD Model Convention on “Associated
Enterprises”
– Need to define the “arm’s length price” of cross-border
transactions between associated enterprises
– OECD Transfer Pricing Guidelines (TPG) originally approved
by the OECD Council in 1995 and completed with
additional guidance on cross-border services, intangibles,
costs contribution arrangements and advance pricing
arrangements in 1996-1999 and on dispute resolutions in
2009
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Introduction OECD Guidelines
– Transfer pricing methods provided for in the OECD
Guidelines
–Traditional transactional methods
– comparable uncontrolled price method (CUP)
– Resale price method
– Cost plus method
–Transactional profit methods
– Transactional net margin method (TNMM)
– Transactional profit split method
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Introduction OECD Guidelines
– Further content of the OECD Guidelines:
–Documentation requirements
– Assists taxpayers to identifying documentation that is helpful in
showing that controlled transactions are at arm’s length
–Ways to solve disputes
– Mutual agreement procedures
– Advance pricing agreements
– Arbitration
–Special considerations for IP or intra group services
– These transactions are difficult to evaluate for tax purposes and
require special attention
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Introduction OECD Guidelines
– The 2010 amendment
–Application of the “most appropriate transfer pricing
method” (instead of the old OECD hierarchy of methods)
–Guidance on how to apply transactional profit methods
(TNMM and Profit split method)
–Guidance on how to perform a comparability analysis
–New chapter IX “transfer pricing of business
restructuring”
–Announcement of revised chapter VI on intangibles
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Transfer Pricing Aspects of Business
Restructurings
– New Chapter IX introduced in 2010
– Business Restructuring (BR) is defined as crossborder reallocation of functions, assets and/or risks
– Reallocation can follow from :
– a transfer of functions, assets and / or risks
and / or
– the termination or substantial renegotiation of
existing arrangements
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Transfer Pricing Aspects of Business
Restructurings
– Difference between business restructuring and change
in transfer pricing policy
–Example 1 : Company Z is a well known distributor of luxury
products. It owns valuable trade name, valuable retail points
and valuable long term contracts with suppliers
–Company Z is acquired by a MNE group which operates
under a global business model --> restructuring to align Z
operating model
–Company Z transfers its trademarks to V in Country V, its
suppliers contracts to Country W, and its retails points to
Country X
–A compensation must be paid for the business restructuring
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Transfer Pricing Aspects of Business
Restructurings
– Difference between business restructuring and change
in transfer pricing policy
–Example 2 : Company Y is a manufacturer of timing
mechanisms for mass-market clocks. Due to new economic
situation, the group newly applies a cost plus 3 method
instead of the former cost plus 5 method to remunerate
company Y
–The taxable profit in Country Y is reduced
–There is no reason for levying an exit tax
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Transfer Pricing Aspects of Business
Restructurings
– Mains issues
- Understanding the restructuring itself
- Transfer of something of value (e.g. an asset or a going
concern)
- Indemnification of the restructured entity for the
termination or substantial renegotiation of existing
arrangements
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Transfer Pricing Aspects of Intangibles
– Proposed changes to Chapter VI of the TPG issued
on 6 June 2012
–a proposed revision of the provisions of Chapter VI of
the TPG
–and (ii) a proposed revision of the Annex to Chapter VI
containing examples illustrating the application of the
provisions of the revised text of Chapter
– Written comments on this Discussion Draft can be made
by 14 September 2012
– Intention to hold public consultation on this Discussion
Draft in Paris during the week of 5 November 2012
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Transfer Pricing Aspects of Intangibles
Key aspects
– Cornerstone of transfer pricing should be based on how
independent third parties would behave in comparative situations
rather than on accounting or legal definitions or general tax
purposes
– No differentiation between trade versus marketing intangibles; soft
versus hard, or routine versus non-routine
– Differentiation between intangible and intellectual property and
market conditions that are not capable of being owned, controlled
or transferred by a single enterprise.
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Transfer Pricing Aspects of Intangibles
Key aspects
– Goodwill and going concern should not be considered separately as
intangibles (with certain exceptions but should be taken into
account as part of a business’s assets
– Distinction between two classes of transactions involving
intangibles:
– where intangibles are used by one or both parties in the
controlled transaction for sales of goods with no transfer of
intangibles
– where the rights to intangibles are transferred as part of the
controlled transaction
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Transfer Pricing Aspects of Intangibles
Key aspects
– The discussion draft also confirms that permanent
establishments do not necessarily organise their affairs in
the same way as independent third parties
– 22 examples providing practical guidance on how to apply
the principles discussed in the draft
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Thank you for your attention
Zurich
Berne
Walder Wyss Ltd.
Seefeldstrasse 123
P.O. Box1236
8034 Zurich
Switzerland
Walder Wyss Ltd.
Bubenbergplatz 8
P.O. Box 8750
3001 Berne
Switzerland
Phone +41 44 498 98 98
Fax +41 44 498 98 99
reception@walderwyss.com
www.walderwyss.com
Phone +41 44 498 98 98
Fax +41 44 498 98 99
reception@walderwyss.com
www.walderwyss.com
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