Transfer Pricing: OECD Transfer Pricing Rules and Guidelines (Portfolio 6936)

Tax Management Portfolio, Transfer Pricing: OECD Transfer Pricing Rules and Guidelines, describes and interprets the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of the Organization for Economic Cooperation and Development (OECD), as last revised in 2010.

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Practitioners will most often encounter the Guidelines in tax audits and competent authority proceedings where the Guidelines are used to shed light on the transfer pricing regulations of a particular country or to reconcile seemingly contradictory transfer pricing rules of two countries. The OECD Guidelines were heavily influenced by transfer pricing developments in the United States, and the portfolio draws attention to analogs and potential discrepancies between the Guidelines and the U.S. transfer pricing regulations. The Guidelines are organized into nine chapters with alphabetically lettered subchapters; this portfolio discusses the chapters in order for ease of reference.


Transfer Pricing: OECD Transfer Pricing Rules and Guidelines was authored by the following experts.
Robert E. Culbertson, Esq.

Robert E. Culbertson, Yale University (B.A. 1979), Harvard University (J.D. 1982).

Michael C. Durst, Esq.

Michael C. Durst, Williams College (B.A. 1975), M.I.T. (M.S. (Econ.) 1978), U.Cal. Berkeley (J.D. 1981), Harvard University (LL.M. 1985).

David B. Bailey, Esq.

David B. Bailey, Esq., King & Spalding LLP, Washington, D.C. Duke University (A.B. 1994); Georgetown University Law Center (J.D. 1999); New York University School of Law (LL.M. in Taxation, 2001); Executive Editor, The Tax Lawyer; Graduate Editor, Tax Law Review.

Table of Contents

Detailed Analysis

Chapter 20: TRANSFER PRICING: OECD TRANSFER PRICING RULES AND GUIDELINES by Robert E. Culbertson, Esq., Michael C. Durst, Esq. and David B. Bailey, Esq., King & Spalding LLP, Washington, D.C.

I. Introduction


B. Legal Authority of the Guidelines

C. Historical Predecessors of the Current Guidelines

D. Immediate Background of the Current Guidelines

II. Chapter I of the Guidelines: The Arm's Length Principle

A. Introduction

B. Statement of the Arm's Length Principle

C. Guidance for Applying the Arm's Length Principle

1. Comparability Analysis

a. Reasons for Examining Comparability

b. Factors Determining Comparability

(1) Characteristics of Property or Services

(2) Functional Analysis

(3) Contractual Terms

(4) Economic Circumstances

(5) Business Strategies

2. Recognition of the Actual Transactions Undertaken

3. Evaluation of Separate and Combined Transactions

4. Use of an Arm's Length Range

5. Use of Multiple Year Data

6. Losses

7. The Effect of Government Policies

8. Intentional Set-Offs

9. Use of Customs Valuations

10. Use of Transfer Pricing Methods

III. Traditional Methods

A. Introduction

B. Relationship to Article 9

C. Types of Traditional Transaction Methods

1. Comparable Uncontrolled Price ("CUP") Method

2. Resale Price Method

3. Cost Plus Method

D. Relationship to Other Methods

IV. Other Methods

Introductory Material

A. Introduction

B. Transactional Profit Methods

1. Profit Split Method

a. In General

b. Strengths and Weaknesses

c. Guidance for Application

2. Transactional Net Margin Method

a. In General

(1) Preliminary Comments

(2) Introductory Discussion in Guidelines

b. Strengths and Weaknesses

c. Guidance for Application

(1) The Comparability Standard to Be Applied to the TNMM

(2) Other Guidance

3. Conclusions on Transactional Net Profit Methods

C. A Non-Arm's Length Approach: Global Formulary Apportionment

V. Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes

A. Introduction

B. Transfer Pricing Compliance Practices

1. Examination Practices

2. Burden of Proof

3. Penalties

C. Corresponding Adjustments and the Mutual Agreement Procedure

D. Simultaneous Examinations

E. Safe Harbors

F. Advance Pricing Arrangements (APAs)

G. Arbitration

VI. Documentation

VII. Special Considerations for Intangible Property

Introductory Material

A. Introduction

B. Commercial Intangibles

1. In General

2. Examples: Patents and Trademarks

C. Applying the Arm's Length Principle

1. In General

2. Identifying Arrangements Made for the Transfer of Intangible Property

3. Calculation of Arm's Length Consideration

4. Arm's Length Pricing when Valuation Is Highly Uncertain at the Time of the Transaction

D. Marketing Activities Undertaken by Enterprises Not Owning Trademarks or Tradenames

VIII. Special Considerations for Intra-Group Services

A. Background

B. Introduction

C. Main Issues

1. Identifying Intra-Group Services

2. Determining an Arm's Length Charge

3. Calculating the Arm's Length Consideration

D. Some Examples of Intra-Group Services

IX. Cost Contribution Arrangements

A. Introduction

B. Definitional Portions of Chapter VIII

1. Introduction

2. Concept of a CCA

a. In General

b. Relationship to Other Chapters

c. Types of CCAs

C. Applying the Arm's Length Principle

1. In General

2. Determining Participants

3. The Amount of Each Participant's Contribution

4. Determining Whether the Allocation Is Appropriate

5. The Tax Treatment of Contributions and Balancing Payments

D. Tax Consequences if a CCA Is Not Arm's Length

1. Adjustment of Contributions

2. Disregarding Part or All of the Terms of a CCA

E. CCA Entry, Withdrawal, or Termination

1. Entry

2. Withdrawal

3. Termination

F. Recommendations for Structuring and Documenting CCAs

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Statement by John Neighbour, Head of OECD Transfer Pricing Unit, on October 1999 Publication of Annex to 1995 Transfer Pricing Guidelines

Worksheet 2 "OECD Guidelines Not Keeping Pace with Increasing Globalization, Commenters Say," 12 Tax Mgmt. Transfer Pricing Rpt. 907 (2/18/04)




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