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OECD Forum To Simplify Transfer Pricing Rules

by Ulrika Lomas,, Brussels

30 March 2012

Meeting at the first Organization for Economic Cooperation and Development (OECD) Global Forum on Transfer Pricing, tax officials from 90 countries agreed on the need to simplify transfer pricing rules, strengthen the guidelines on intangible issues and improve the efficiency of dispute resolution.

Transfer pricing rules determine how international transactions within a multinational company must be priced to ensure each country receives its fair share of tax. Based on the OECD and United Nations Model tax conventions, the rules are meant to eliminate double taxation and ensure better compliance by companies. However, the OECD is of the view that these rules now need to be "simplified and made more robust", with intangible assets identified as a particularly critical area, where location may have a strong impact on tax revenues.

An OECD survey of its member and observer states published in June last year claimed to show that transfer pricing regimes are getting simpler, and that over 80% of the 33 countries which took part in the survey have simplification procedures in place. However, at the same time, transfer pricing disputes, which can be lengthy and expensive affairs, are becoming more numerous across the world, and tax directors and international tax practitioners now say that this is the key challenge facing multinationals in the area of tax.

In his opening remarks to the Forum, OECD Secretary-General Angel Gurria emphasized that: “The time has come to simplify the rules and alleviate the compliance burden for both tax authorities and taxpayers. Complicated rules can be a barrier to cross-border trade and investment and place a heavy burden on tax administrations and businesses, we are making our approach simpler without making it arbitrary.”

Explaining the importance of this work, the director of the OECD’s Centre for Tax Policy Administration, Pascal Saint-Amans, said that: “It is essential to simplify and strengthen the transfer pricing rules for the benefit of both developed and developing economies, as well as for businesses. We need to take into account the views of all countries to ensure that the rules will be applied in a globally consistent manner - eliminating double taxation and avoiding double exemption. The Global Forum plays a critical role in achieving this objective."

Delegates agreed that during the coming year the Global Forum will carry out a transfer pricing risk assessment, developing a detailed “how-to” manual which will establish good practices for governments when they assess transfer pricing risk at the beginning of an audit.

TAGS: compliance | tax | business | holding company | tax avoidance | law | Organisation for Economic Co-operation and Development (OECD) | corporation tax | audit | group taxation | multinationals | controlled foreign corporations (CFC) | transfer pricing | advance pricing agreement (APA) | triangulation

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