The new OECD transfer pricing guidelines on business restructuring: a deeper dive

by Ajit Jain

The OECD’s new transfer pricing approach to business restructuring, as described in Chapter IX of 2017 OECD transfer pricing guidelines, has changed radically from prior versions.

These new transfer pricing guidelines, released on July 10, echo important changes made in 2015 OECD/G20 base erosion and profit shifting (BEPS) project regarding how to analyze a transaction for purposes of transfer pricing.

The following is a closer look at the new OECD transfer pricing guidelines on business restructuring, highlighting areas of the greatest importance to practitioners.

Delineation of transactions in pre- and post-structuring

The 2017 guidelines provide that the analysis of a business restructuring from a transfer pricing perspective starts with the accurate delineation of the transactions that comprise the restructuring.

This involves identifying the parties’ commercial or financial relations and the conditions attached to those relations that lead to a transfer of value among the members of the MNE group.

The importance of delineation in pre-and post structuring is emphasised in the new guidelines as this influences arm’s length compensation, risk assessment between the parties, and the selection of the appropriate transfer pricing method for the transaction.

Delineation of a transaction begins with the formalised written contracts, namely, the formal agreements between the parties before and after restructuring which provide evidence of the roles and responsibility of the MNEs involved and the compensation model which supports the determination of arm’s length compensation.

Another factor, the guidance states, is the accuracy of demarcation of the transactions.

An analysis of the transactions should be individually undertaken from a restructuring point of view. It would be appropriate if the arm’s length compensation for each accurately delineated transaction for each individual group member is chalked out rather than combined for MNE group.

Role of synergies

The new OECD transfer pricing guidelines on business restructuring also provide that an additional factor influencing a restructuring is the role of synergies between the parties involved in the transaction.

A contribution leading to the creation of synergies determines the risk of the parties involved in the restructuring, the guidance states. Further, if an associated enterprise is contributing to the synergies, an appropriate compensation should be provided to the contributor.

Transfer pricing master and local file

BEPS Action plan 13 mandates that details of a business restructuring be provided in the transfer pricing master file and local file.

Additionally, it is generally good practice that taxpayers document their decisions and intentions regarding business restructurings in the MNE group’s transfer pricing documentation.

Ajit Jain, founding partner of Ajit Kumar Jain & Co. LLP, Mumbai, is a Chartered Accountant with LL.M. in International Taxation from Vienna specializing in transfer pricing dispute resolution. He can be reached at

–Chitra RS assisted in writing this article. 

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