Client Tax Alert: OECD Releases First Update Since 2017 to Transfer Pricing Guidelines

Overview

At the end of January 2022, the Organization for Economic Cooperation and Development (“OECD”) issued an updated version of its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Guidelines”), representing its first update since 2017. The OECD Guidelines provides guidance on the application of the “arm’s length principle,” which is used as the consensus standard for intercompany pricing between associated entities for tax purposes.

The 2022 version of the OECD Guidelines incorporates the previous guidance as well as the materials released by the OECD since the previous version, resulting from the OECD / G20 Base Erosion & Profit Shifting (“BEPS”) project in relation to the following topics:

1. Revised Guidance on the Application of the Transactional Profit Split Method, providing factors for consideration of the profit split method and relevant allocation keys as well as clarifies scenarios in which this method is unlikely to be appropriate;
2. The Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles, which defined rules as to application of ex post adjustments based on how valuable an intangible turned out to be instead of ex ante pricing;
3. The Transfer Pricing Guidance on Financial Transactions, which addresses use of credit ratings (including implicit support), availability of market data and regulatory constraints and proposes methods for specific types of financial transactions.

Implications and Next Steps

Although the 2022 version of the OECD Guidelines incorporates changes that have already been adopted, tax administrations may increase scrutiny and expand their transfer pricing approaches within domestic legislation.

As changes in regulation results in additional compliance burden, it behooves taxpayers to closely monitor such changes and ongoing developments. JH-Law assist its clients in ensuring compliance with the transfer pricing methods and documentation requirements as found in the updated OECD Guidelines.