OECD transfer pricing guidelines get first update in five years

By Doug Connolly, MNE Tax

In the new 2022 edition of the OECD’s transfer pricing guidelines released on January 20, the OECD has made three significant additions and revisions to the guidelines for multinational enterprises and tax administrations, reflecting several enhancements developed over the last few years.

The changes address guidance on the transfer pricing aspects of financial transactions, the transactional profit split method, and hard-to-value intangibles. These updates in the latest edition expand the document to 658 pages, up from 612 pages in the last edition issued in 2017.

The OECD transfer pricing guidelines, first issued in 1995, consolidate OECD guidance on the arm’s length principle dating back to 1979. They are intended to help both multinational enterprises and tax administrations in evaluating transfer pricing issues. The guidelines analyze and illustrate various methods for satisfying the arm’s length principle, and they are intended to govern the resolution of transfer pricing methods between OECD countries.  

The biggest change in the 2022 edition is the new Chapter X on the transfer pricing aspects of financial transactions. The guidance in the new chapter was issued in final form by the OECD in February 2020. This was the first specific guidance from the OECD focused on transfer pricing aspects of financial transactions, and it includes illustrative examples. In addition to the new Chapter X included in the latest guidelines, the financial transactions revisions are also reflected in Chapter I (The arm’s length principle) in a new section (D.1.2.2) on risk-free and risk-adjusted rates of return.

The 2022 updates to the guidance on transactional profit split method incorporate the revised OECD guidance on that topic issued in 2018. The revised guidance aims to clarify when the transactional profit split method is the most appropriate method to apply. The updates replace paragraphs 2.114–2.151 of the guidelines in the section on the transactional profit split method (Chapter II, Part III, section C). They also replace Annex II to Chapter II with examples to illustrate the guidance on the transactional profit split method.

The revisions in the 2022 edition with respect to hard-to-value intangibles similarly reflect guidance issued in 2018. This guidance is intended to help tax administrations in applying the approach to hard-to-value intangibles under BEPS Action 8. The changes are included in a new annex – Annex II to Chapter VI.

The previous update to the guidelines in the 2017 edition included substantial changes related to the 2015 OECD base erosion and profit shifting (BEPS) action plans, including on aligning transfer pricing outcomes with value creation and on transfer pricing documentation and country-by-country reporting.