Strategizing International Tax Best Practices – by Keith Brockman

The OECD has released its Discussion Draft addressing BEPS Action 8: TP Guideline revisions on Cost Contribution Arrangements (CCAs).  Comments should be submitted by 29 May 2015.

A link to the Discussion Draft is provided for reference:

http://www.oecd.org/tax/transfer-pricing/discussion-draft-beps-action-8-cost-contribution-arrangements.pdf

Observations;

  • Updated TP Guidelines text for Chapter VIII
  • Draft guidance on Chapter I of the TP Guidelines released for public comments on 19 Dec. 2014 is taken into account
  • There is always an expected benefit that each participant seeks from its contribution
  • CCAs are to operate in accordance with the arm’s length principle
  • Two types of CCAs: Development (i.e. ongoing future benefits) and Services (i.e current benefits)
  • CCAs differ from intercompany transfer of property/services due to the expected mutual and proportionate benefit from pooling of resources and skills
  • Illustrative examples are provided at the end of the Discussion Draft for further reference
  • Application of arm’s length principle to CCAs:
    • All parties have a reasonable expectation of benefit
    • Calculate value of each participant’s relative contribution to the joint activity
    • Determine whether allocation of CCA contributions accords with their respective share of expected benefits

As CCAs are becoming more common by MNEs, with additional complexity in valuation and comprehension by tax administrations, this Discussion Draft will form long-term guidance for the new TP Guidelines.  Accordingly, it should be reviewed, with comments provided accordingly, by all interested parties.

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