The OECD was requested by the G8 at its Lough Erne summit “to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing effectively.” This paper, which has been prepared by the OECD Secretariat in conjunction with the Task Force on Tax and Development, sets out and briefly discusses four possible approaches to addressing the concerns over the lack of data on comparables that have been expressed by developing countries. It is an interim draft that has been released to obtain comments, suggestions and prioritisation of the potential measures identified in the paper. The views expressed therein do not necessarily represent the views of the OECD member countries.
The paper will be discussed in two parallel sessions on the last day of the Global Forum on Transfer Pricing meeting of 26–28 March 2014. The last day of the March meeting of the Global Forum will be held in conjunction with the Task Force on Tax & Development.
Written comments and suggestions on this paper should be sent to TransferPricing@oecd.org by 11 April 2014.
Executive Summary of the Paper
Applying the arm’s length principle to review transfer prices set in transactions between associated enterprises often requires a comparison to be made between these prices and the prices set in similar transactions between independent enterprises in similar circumstances. OECD and non-OECD countries frequently express concerns about the availability and quality of financial data on transactions between unrelated parties that can be used for comparisons, as well as the availability and quality of information regarding the financial results of operations of comparable independent enterprises. These concerns about the lack of available comparables are particularly pressing for developing countries. The G8, under the United Kingdom’s presidency, thus requested the OECD “to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing effectively.” This paper sets out and briefly discusses four possible approaches to addressing the concerns over the lack of data on comparables expressed by developing countries.
- Expanding access to data sources for comparables, including steps to improve the range of data contained in commercial databases, expand developing country access to such databases, and improve access to comparables data in developing countries with a significant number of sizeable independent companies.
- More effective use of data sources for comparables, including guidance or assistance in the effective use of commercial databases, the selection of foreign comparables, whether and how to make adjustments to foreign comparables to enhance their reliability, and alternative approaches to finding comparables.
- Approaches to identifying arm’s length prices or results without reliance on direct comparables, including guidance or assistance in making use of proxies for arm’s length outcomes, the profit split method, value chain analysis, and safe harbours, an evaluation of the impact, effectiveness and compatibility with the arm’s length principle of approaches such as the so called “sixth method”, which is increasingly prevalent particularly in developing countries in Latin America and Africa, and a review of possible anti-avoidance approaches.
- Advance pricing agreements and mutual agreement proceedings, including a review of developing country experiences with the pros and cons of advance pricing agreements and negotiations to resolve transfer pricing disputes, as well as guidance or assistance with respect to mutual agreement proceedings.
Given the broad range of possible actions, further prioritisation based on country needs and resource availability will be necessary.
Source- OECD
Read more – Paper on Transfer Pricing Comparability Data And Developing Countries
