Countries still can’t agree on global transfer pricing standards for financial transactions, OECD official says

by Julie Martin

Countries working on an OECD-led effort to create uniform transfer pricing rules for related-party financial transactions are having a difficult time reaching agreement; thus, a long-awaited OECD draft on the matter, slated for release this summer, will highlight country disagreements rather than propose new standards, reported Thomas Balco, Head of the Transfer Pricing Unit at the OECD Centre for Tax Policy and Administration.

Speaking at the 2018 OECD International Tax Conference, held June 4–5 in Washington, Balco said that said that the financial transactions transfer pricing standard setting work is being carried out by the “Inclusive Framework on BEPS,” a coalition of more than 100 countries organized by the OECD.

Working with such a large group is challenging because of the multiplicity of views, Balco said. It is a rewarding exercise, though, he said, because to the extent that countries can agree on common guidance, the guidance carries the commitment of a lot of people.

Balco said that topics to be addressed in the financial transactions transfer pricing guidelines include the importance of an entity’s group credit rating versus its standalone credit rating; cash pooling, including the sharing of rewards by cash pool participants; captive insurance; and intragroup guarantees.

“Probably in every topic there is tension in terms of how countries view what the outcome of the guidance should be, which is why progress has been somewhat slow,” Balco told the conference, which was sponsored by the OECD, USCIB, and BIAC.

“Probably in every topic there is tension in terms of how countries view what the outcome of the guidance should be, which is why progress has been somewhat slow,” Balco told the conference, which was sponsored by the OECD, USCIB, and BIAC.

Kevin Nichols, US Treasury Senior Counsel in the Office of International Tax Counsel, said that countries also have a very fundamental dispute regarding whether, in a related party context, the character of an instrument as debt or equity should be assessed using an Article 9 arms-length approach.

Some believe an arm’s length approach is the correct frame of reference while others, like the US, believe that debt/equity characterization should be determined under domestic law, he said.   

Financial transactions roadmap

Balco reported that the Inclusive Framework countries have agreed to a roadmap that sets a timeline for completion of this key transfer pricing guidance.

The plan is to release a discussion draft on the transfer pricing aspects of financial transactions this summer — hopefully by July — which will identify areas of country disagreement and seek practitioner input.

Those commentator inputs would be discussed at a November meeting of Working Party No. 6 of the OECD Committee on Fiscal Affairs (WP6), which will hopefully drive debate forward, he said.

Balco said the plan is to make public a consensus discussion draft by early next year. The goal is to reach final agreement at the WP6 level by April 2019, he said.

Hard-to-value intangibles, transactional profit splits

Balco said that revised draft guidelines on the implementation of the hard-to-value intangibles guidance and on the transactional profit split method have been approved by WP6. Both projects will be approved by the Inclusive Framework unless a country lodged an objection by June 4.

He said that the OECD will begin to assess governments’ approaches to hard-to-value intangibles next year so as to prepare for a 2020 review. The OECD would appreciate any taxpayer inputs on this topic, he said.

During a separate panel, Balco said that WP6 also seeks comments by June 20 for a possible update to Chapter 4 of the OECD transfer pricing guidelines on avoiding and resolving transfer pricing disputes. The comments will be discussed at WP6’s November meeting. After that, the scoping work will be finalized and work should begin in 2019.

Julie Martin

Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at

Julie Martin
Julie can be reached at

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