The OECD on October 6 released 44 public comment letters responding to an OECD discussion draft detailing the transactional profit split method for transfer pricing and 48 public comments on a draft on the attribution of profits to permanent establishments.
Both drafts were released June 22 and are designed to set international standards on the taxation of multinational groups. The drafts are follow-up work undertaken by an OECD working group in response to the OECD/G20 base erosion profit shifting plan.
Writing on behalf of the OECD’s Business and Advisory Committee (BIAC), tax committee chair William Morris said that profit split draft needs further refinement to ensure that the transfer pricing method is only used in the limited circumstances where the actual transaction under consideration is one that would be subject to a similar methodology when negotiating with unrelated parties.
BIAC said that the guidance should strongly and explicitly emphasize that the transactional profit split method is only of limited application and is not the default method. Moreover, the group argued that the draft should provide greater detail and more detailed examples, and, in particular, define the term “unique and valuable.”
BIAC also urged that guidance on profit splits guidance take into account future work on the tax challenges of the digital economy or remain in draft form until the outcome of Action 1 of the BEPS project work stream is complete.
BIAC also urged that the OECD to provide further detail in the guidance on the attribution of profits. Such detail is need to bolsters tax certainty and cooperative compliance, the group said.
Keidanren, the Japan Business Federation, wrote that the final version of the profit split guidance should reiterate that the transactional profit split method is applicable only in very limited circumstances. Where its use is increasingly accepted, or enforced arbitrarily by tax administrations, occurrences of double taxation are likely to increase, including cases that may not be resolvable via mutual agreement procedures, Keidanren noted.
Keidanren said the draft on attribution of profits to permanent establishments contains multiple beneficial points and praised the draft’s simplification measures that take into account countries that do not adopt the authorized OECD approach. The group said, though, that there is still much room in the draft for clarification and enhancement, particularly regarding the relationship between Articles 7 and 9 of the Model Tax Convention to prevent double taxation.
Comments letters on the OECD profit split draft were authored by the following 44 individuals and groups:
Andrew Hickman, ANIE, Argentine Association of Tax Studies, Association of Banks in Singapore, AstraZeneca, BDO, BEPS Monitoring Group, BIAC, Brigitte Baumgartner, BusinessEurope, CMS, Contrabass, Copenhagen Economics, Deloitte Tax LLP, Deloitte UK, EY, Flick Gocke Schaumburg, FTI Consulting, Grant Thornton UK LLP, International Alliance for Principled Taxation, ICAEW, International Chamber of Commerce, IFA (Mexican Branch), InterContinental Hotels Group, Japan Foreign Trade Council, Johann H. Müller, Keidanren, Mark Bronson, MDW CONSULTING, National Foreign Trade Council, NERA, Pat Breslin, Pirola Pennuto Zei & Associati, PwC, RBRT Fiscalité, RELX Group, SATIS RES, Silicon Valley Tax Directors Group, SwissHoldings, Taj, Tax Executives Institute, Transfer Pricing and Controlling, USCIB, WU Transfer Pricing Center.
Comments on the OECD draft on attribution of profits to permanent establishments were submitted by the following 48 individuals and groups:
AFME and UK Finance, Andrew Cousins & Richard Newby, Andrew Hickman, ANIE (Federazione Nazionale Imprese Elettrotecniche ed Elettroniche), Association of British Insurers, BDI, BDO, BEPS Monitoring Group, BIAC, BusinessEurope, Chartered Institute of Taxation (CIOT), CMS, Damian Preshaw Consulting Pty Ltd, Deloitte Tax LLP, Deloitte UK, EY, Fenwick & West LLP, Gazprom Marketing & Trading, Generali, German Federal Chamber of Tax Advisers, Giovannelli e Associati, Global Federation of Insurance Associations, Grant Thornton International Ltd, ICAEW, Insurance Europe, International Alliance for Principled Taxation, International Chamber of Commerce, Japan Foreign Trade Council, Joseph L. Andrus and Richard S. Collier, Johann H. Müller, Keidanren, KPMG, Ludovici Piccone & Partners, Maisto e Associati, National Foreign Trade Council, NERA Economic Consulting, Pirola Pennuto, Zei & Associati, PwC, RBRT Fiscalité, Sergio Guida, Silicon Valley Tax Directors Group, Software Coalition, Tax Policy Center (University of Lausanne), Tax Executives Institute, Tremonti Romagnoli Piccardi e Associati, United Partners, USCIB, WU Transfer Pricing Center.