Tax Executives Institute (TEI) recently submitted a letter in response to requested comments by the OECD re: revisions to its transfer pricing guidelines. The submission is well drafted and articulate, generally urging OECD to improve current practices rather than adopting new complex mechanisms.
An example of several suggestions is provided:
TEI suggests a number of elements should be included in future guidance to improve transfer pricing compliance practices. First, tax authorities should share their risk assessments with taxpayers so taxpayers can improve their compliance processes where appropriate, or engage in a discussion with tax authorities regarding their view of the taxpayer’s compliance risk. Second, to avoid transfer pricing disputes, Chapter IV should urge tax authorities to focus audit activity on transactions that are more likely to be tax motivated (i.e., between high and low tax jurisdictions), rather than simple intercompany transactions where the taxpayer makes reasonable efforts to price the transactions and where the possibility of a tax motivation is remote. For example, head office cost allocations between countries with relatively comparable tax rates should be viewed as low risk. Finally, the OECD should encourage countries to consider halting interest and penalties if dispute resolution takes longer than two years and if the country does not have a mandatory arbitration procedure.
TEI’s submission should be read in its entirety to further understand the direction of OECD and possible remedies in the complex world of transfer pricing.