by Julie Martin, Editor, MNE Tax
The OECD today released its long-awaited discussion draft on the transfer pricing aspects of financial transactions.
Countries are having a difficult time reaching agreement on these issues; thus, as expected, the draft guidance does not reflect the consensus views of the OECD Committee on Fiscal Affairs or its subsidiary bodies. Rather, the document identifies the areas of disagreement between countries and solicits stakeholder input on these topics.
The work addresses specific transfer pricing issues associated with financial transactions between related parties, such as the treasury function, intra-group loans, cash pooling, hedging, guarantees, and captive insurance. The project is follow-up work from the OECD/G20 base erosion profit shifting (BEPS) plan.
In June, Kevin Nichols, US Treasury Senior Counsel in the Office of International Tax Counsel, told a tax conference that countries differ on 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 or by reference to domestic law.
The draft offers guidance to the former group on how to apply the concepts developed in new Chapter 1 of the OECD transfer pricing guidelines, such as the accurate delineation of transactions. It also stresses that the draft is not intended to prevent countries from addressing capital structure and interest deductibility under domestic legislation.
During that same conference, Thomas Balco, Head of the Transfer Pricing Unit at the OECD Centre for Tax Policy and Administration, said that the OECD hopes that stakeholder feedback on the discussion draft would help move the debate forward.
The goal is to prepare consensus draft by early next year and reach agreement on final guidance within Working Party No. 6 of the OECD Committee on Fiscal Affairs by April 2019, Balco said.
Comments are requested on the discussion draft by September 7.
Julie Martin
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 [email protected].
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