Comment on OECD Discussion Draft of the BEPS Action 8 “Hard-to-Value Intangibles” Guidance

14 July 2017
Dr. Vladmir Starkov and Guillaume Madelpuech

The Organisation for Economic Co-Operation and Development (OECD) recently released for discussion draft Implementation Guidance on Hard to Value Intangibles (HTVI). The guidance outlines a framework that tax administrations can use to implement the arm’s length principle in cases where taxpayers transfer intangibles whose value is uncertain among members of a controlled group. It also proposes implementing an HTVI pricing approach that involves consideration of ex post outcomes as presumptive evidence about the appropriateness of the taxpayers’ ex ante valuation of HTVI.

NERA Associate Director Dr. Vladimir Starkov and Principal Guillaume Madelpuech responded to the OECD’s invitation to provide comments on the draft. In their letter, the authors discuss the relationship between intangibles’ development cycle and their value, contingent payments and adjustable royalties in the context of long-term relationships, and whether the information asymmetry between taxpayers and tax authorities is as large as the OECD draft assumes. The authors also examine how false positives can make it difficult for tax authorities to distinguish ex post the difference between “bad faith taxpayers” and “good faith taxpayers,” how overpayments for intangibles should be dealt with in an arm’s length setting, and if any adjustments under the HTVI framework should automatically be open to mutual agreement procedures (MAPs).