The OECD on Friday published comments written in response to its July 3 discussion draft on proposed transfer pricing rules for intragroup financial transactions. Altogether, 78 comments were published by the OECD in three documents: Part 1, Part 2, and Part 3.
The July discussion draft was developed by the OECD in an effort to craft uniform transfer pricing rules for counties to follow in this contentious area. Countries are having a difficult time reaching consensus on transfer pricing rules for financial transactions. Thus, the draft seeks stakeholder feedback in an effort to move the debate forward.
Writing on behalf of BIAC, Will Morris said the OECD should reconsider moving forward with developing broad transfer pricing rules for financial transactions.
Morris said that the OECD/G20 base erosion profit shifting (BEPS) plan has already made significant progress toward shutting down tax avoidance from intragroup funding through the new general transfer pricing rules on accurately delineating transactions, interest limitation rules, hybrid mismatch rules, and mandatory reporting rules. Except in narrow cases, additional transfer pricing provisions on financial transactions may greatly complicate daily funding activities of MNE groups but provide little benefit, BIAC asserts.
BIAC argues that additional transfer pricing rules might be appropriate for limited areas such as guarantee fees, cash-pooling, and captive insurance. The draft should address comparability issues that are unique in this area, such as the issue of implicit support provided by a parent company, BIAC said.
A contrary view was expressed by the BEPS Monitoring group, a coalition of NGOs. The discussion draft should be revised to explain and emphasize the reality that tax-motivated financial transaction structuring is pervasive and a major cause of BEPS that requires tax authorities’ focus and a strong sense of skepticism, the group wrote in comments drafted primarily by Jeffery Kadet.
The BEPS Monitoring Group also said that while the discussion draft was well thought out, the guidelines are too complex for many developing nation tax administrations to apply. “[W]hat is sorely needed are simplified methods that are simple to apply and that provide results that are fair to both taxpayers and tax authorities alike,” the group said.
The Chartered Insitute of Taxation (CIOT) noted that the discussion draft focuses more on providing certainty around appropriately delineating and pricing transactions than on answering the broader questions of whether the actual capital structure of groups should be respected for tax purposes. CIOT believes that the new guidance should emphasize that a countries’ unilateral restrictions on capital structures weaken the importance of finding the appropriate transfer price of a financial transaction and may result in double taxation.
CIOT also argues that the discussion draft’s implication that full functional analysis and documentation is required for all intragroup financial transaction is overly burdensome. The guidance should focus instead on high-risk transactions, CIOT said
In its comments, the Japan Foreign Trade Council’s Accounting & Tax Committee said that to avoid placing undue burden on business, MNE groups that are not primarily engaged in finance and insurance businesses should be treated differently and separately from MNE groups primarily engaged in these businesses.
The Silicon Valley Tax Director’s Group, representing US high-tech companies, took issue with the draft’s characterization of treasury companies as low-risk support functions entitled only to a low return. The group says that such a view does not reflect this specutrum of companies’ functionality and risk exposure.
The following individuals and groups commented on the draft:
Actionable Insights Advisory, Alexander Kruglov, Alternative Information & Development Center, Association for Financial Markets in Europe, Association of Banks in
Singapore, Association of British Insurers. AstraZeneca, BDI, BDO International, BEPS Monitoring Group, BE-V VA , Bharti Airtel Limited, BIAC, Bignon Lebray and DBA, Borioli & Colombo Associati, Breslin Consulting, Cajetan Fiedler, Canadian Bankers Association, Capital Markets Tax Committee of Asia –Transfer Pricing Sub-Committee, Captive Insurance Companies Association, Chartered Institute of Taxation, Confederation of Indian Industry, Copenhagen Economics, Deloitte UK, Dhruva Advisors LLP, DTEK Energy, Duff & Phelps, EBIT, Embridge Economics B.V, Erste Group Bank AG, European Banking Federation, European Captive Insurance and Reinsurance Owners` Association, Eversheds Sutherland, EY, Fantozzi & Associati – Studio Legale Tributario, Federation of European Risk Management Associations, Federazione Nazionale Imprese Elettrotecniche ed Elettroniche (ANIE), FTI Consulting, Grant Thornton International, Hardeep Singh Chawla, International Chamber of Commerce (ICC), Insurance Company Working Group on BEPS, Insurance Europe, International Fiscal Association (Mexican Branch) Transfer Pricing Committee, Japan Foreign Trade Council, KPMG, Lee-Odden, Loyens & Loeff, Ludovici Piccone & Partners, Macfarlanes, MEDEF, Mexican Institute of Public Accountants, Moore Stephens LLP, Morri Rossetti e Associati, National Foreign Trade Council, NERA Economic Consulting, Osler Hoskin & Harcourt LLP, Pirola Pennuto Zei & Associati, PwC, Royal Bank of Canada, Schwabe, Ley & Greiner, Securities Industry and Financial Markets Association, Silicon Valley Tax Directors Group, Simmons & Simmons LLP, South African Institute of Chartered Accountants, Swiss Bankers Association, Swiss Insurance and Reinsurance Captives Association, SwissHoldings, Taxand, Tax Executives Institute, Transfer Pricing Advisory, Treaty Policy Working Group, Tremonti Romagnoli Piccardi e Associati, UK Finance, USCIB, World Bank Group’s Domestic Resource Mobilization Unit, WTS Global, WU Transfer Pricing Center.
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