Comments to the Proposed Revision of Chapters I-III of the OECD Transfer Pricing Guidelines

Fri Jan 08 15:24:38 EST 2010

On 9 September 2009, the OECD Committee on Fiscal Affairs released for public comment a proposed revision of Chapters I-III of the Transfer Pricing Guidelines (TPG) for Multinational Enterprises and Tax Administrations, which were first released in 1995. A group of experts from NERA's Global Transfer Pricing Practice -- led by Senior Vice President Dr. Harlow Higinbotham and Special Consultant Pim Fris -- submitted comments on 8 January 2010, noting that the proposed revisions reflect the growth of transfer pricing as a perceived revenue source, and thus as an area of focus, for tax authorities during the past 15 years. However, the authors argue, despite this growth there is still a fundamental uncertainty regarding how to apply the most basic starting point in transfer pricing -- the arm's length principle (ALP). The authors believe that this uncertainty is a direct result of how Chapter I of the TPG defines and explains the ALP, and offer suggestions as to how it can be applied more consistently. The authors also suggest that Chapter II of the TPG broaden the focus on how multinational enterprises can effectively set prices before transactions take place by taking into account the ex ante aspects of transfer pricing.