Transfer Pricing Times: OECD Requests Public Comments On Scope Of Future Changes To Guidance On Chapters IV And VII Of The Transfer Pricing Guidelines

In this edition: The OECD has invited public comments on scoping the future revision of Chapter IV and Chapter VII of the Transfer Pricing Guidelines; the IRS and Coca-Cola Company transfer pricing trial has concluded; the IRS released an updated template to be utilized by taxpayers when applying for an advance pricing agreement; the German Federal Fiscal Court ruled in favor of the taxpayer in a preliminary injunction case; the Italian Ministry of Economy and Finance provided additional guidance concerning the application of certain transfer pricing provisions; and the Australian Government published its 2018 Federal Budget.

OECD Requests Public Comments on Scope of Future Changes to Guidance on Chapters IV and VII of the Transfer Pricing Guidelines

In a move to complete the overhaul of the original Transfer Pricing Guidelines, the OECD has invited public comments on scoping the future revision of Chapter IV (administrative approaches to avoiding and resolving transfer pricing disputes) and Chapter VII (special considerations for intra-group services).

Since the introduction of the original Transfer Pricing Guidelines by the OECD in 1995, there has been an intermittent program of revision. Chapters I to III were updated in 2010, when Chapter IX on Business Restructuring was also added, and chapters V, VI and VIII were overhauled in 2015 under the recent BEPS project.

Although Chapters IV and VII have incorporated limited revisions since the original 1995 edition of the Transfer Pricing Guidelines (the revision of the section of Chapter IV on safe harbors in 2013 and the addition of the section on a simplified approach to determine the arm's length charges for low-value adding services to Chapter VII as part of the BEPS revisions), they remain largely unchanged since the 1995 Guidelines.

The OECD has indicated that additional work could be done to update the guidance in Chapter IV in relation to examination practices and to mechanisms to prevent and resolve tax disputes, and potentially to include guidance on risk assessment. The OECD published a Draft Handbook on Transfer Pricing Risk Assessment in April 2013 and sought comments at the time but this project has been in abeyance ever since.

Although comments are invited on safe harbors and arbitration, there are apparently no plans to revise the guidance in this respect. Topics on which views are particularly welcomed include aspects or mechanisms to minimize the risk of transfer pricing disputes that could be included as part of the guidance on transfer pricing compliance practices, how to minimize the risk of double taxation on corresponding and/or secondary adjustments, observations on improving the use of APAs and views on other mechanisms for administering transfer pricing or preventing or resolving transfer pricing disputes that could be included in Chapter IV.

The OECD has indicated that the future revision of Chapter VII could be focused on aligning the guidance with the chapters already revised under the BEPS Project, particularly Chapter I but also Chapters VI and VIII, as well as considering whether, and if so, how to incorporate the ongoing work on the use of profit split methods and financial transactions.

To inform the Chapter VII scoping exercise, views are invited on how the guidance could be revised or supplemented to address issues related to the practical implementation of the Guidelines in the context of intra-group services, thus increasing tax certainty for taxpayers and preventing double taxation. Some of the practical challenges identified include demonstrating the rendering or benefits of a service, distinguishing...