OECD Intangibles Draft: Broader Definition, Questioning of Taxpayers' Business Structures Draw Criticism


The OECD’s discussion draft on intangibles has generated more than 1,000 pages of comments from practitioners and business groups, and the debate over many of the positions taken in the draft shows no sign of ending. Two aspects of the draft in particular have sparked controversy:

1. a broader definition of intangibles than what is found in legal or accounting definitions; and
2. an expansion of the “options realistically available” concept that some read as inviting authorities to second-guess taxpayers’ business structures.

After the OECD in September posted the bulk of the comment letters on the draft, which argued almost unanimously for a legal or accounting definition of intangibles, Joseph Andrus, the head of the organization's transfer pricing unit, said the working party delegates remain convinced that a broad, rather than a narrow, definition is appropriate for transfer pricing purposes. Essentially, governments want a wider net to capture intangibles because they are concerned about companies’ ability to move the assets out of their taxing jurisdiction. During the last decade, Andrus said, there has been enormous pressure around transfer pricing, profit shifting, base erosion, “and a very general understanding on the part of governments that the things that they don't like are often accomplished by positions relating to intangibles.”

Practitioners have complained that the intangibles draft would allow a tax authority to second-guess a transaction as structured—for example, in requiring a company to perform functions through its own employees. Andrus tried to assuage that concern at the November consultation, saying that although the draft was intended to include a focus on functions and control of risks in determining which part of a multinational enterprise is entitled to the intangible reward, it did not intend to introduce a conflict with the existing transfer pricing guidelines' treatment of outsourcing of research. If such a conflict is in the draft document, it is due to “bad drafting” and will be corrected, he said.

Andrus, along with Pascal Saint-Amans, director of the OECD's Center for Tax Policy and Administration, will speak at the BNA Bloomberg-Baker & McKenzie Global Transfer Pricing Conference, scheduled for March 11-12 in Paris. To register, visit http://bit.ly/UpPfTf

Molly Moses

Managing Editor, Transfer Pricing Report