OECD draft on transfer pricing for commodities allows quoted prices as CUPs

 

An OECD discussion draft released December 16 proposes to modify OECD transfer pricing guidelines to clarify that the arm’s length price for commodities can be determined by reference to a commodity’s quoted or publicly available prices. The guidance also sets the shipment date as the default pricing date.

According to the draft, the comparable uncontrolled price (CUP) method can be an appropriate method for commodities transactions between associated enterprises, and quoted prices of the commodity in an international or domestic commodity exchange market can be used as CUPs, as long as conditions are comparable.

The draft further proposes to introduce a “deemed pricing date” for commodity transactions, applicable when there is no evidence of an actual agreed pricing date by associated enterprises. The deemed pricing date is set as the date of shipment, as evidenced by a bill of lading or equivalent documents.

The OECD also requests stakeholder input on common adjustments or differentials that are applied to a quoted price to assist the OECD in drafting guidance on this topic.

The guidance was released in response to action 10 of the OECD/G20 base erosion and profit shifting plan. According to the OECD, difficulties associated with applying transfer pricing rules to commodity transactions have led some countries to adopt unilateral transfer pricing approaches, such as the “sixth method” prevalent in Latin America. The emergence of these approaches has highlighted the need for more guidance in the area, the OECD said.

Written comments on the discussion draft are due by February 6. The draft will also be addressed at a public consultation, slated for March 19–20.

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