UK and International Tax news

OECD Issues Further Discussion Papers On BEPS Actions

Wednesday 31st December 2014

The OECD has recently issued further discussion drafts in respect of the VAT B2C guidelines [Action 1], interest deductions [Action 4], follow up work on treaty abuse [Action 6], prevention of artificial avoidance of PE status [Action 7], cross border commodity transactions, profit splits, transfer pricing and intragroup services [Action 10], and dispute resolution [Action 14].

In addition, the OECD has released a discussion draft of proposed revisions to Chapter 1 of the OECD Transfer Pricing Guidelines that relate to risk, recharacterisation and special measures [Actions 8, 9 and 10 – assuring that transfer pricing outcomes are in line with value creation].  These include the development of:

 (i) “rules to prevent BEPS by transferring risks among, or allocating excessive capital to, group members, which will involve adopting transfer pricing rules or special measures to ensure that inappropriate returns will not accrue to an entity solely because it has contractually assumed risks or has provided capital.  The rules to be developed will also require alignment of returns with value creation.”

(ii) “rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties, which will involve adopting transfer pricing rules or special measures to clarify the circumstances in which transactions can be recharacterised.”

(iii) “transfer pricing rules or special measures for transfers of hard-to-value intangibles.”

Part I of the discussion draft contains a proposed revision to Section D of Chapter I of the Transfer Pricing Guidelines, and comments are invited on the revisions.  The proposals emphasise the importance of accurately delineating the actual transactions, and include guidance on the relevance and allocation of risk, determining the economically relevant characteristics of the controlled transaction, and on recharacterisation or non-recognition of transactions.

Part II of sets out options for some special measures, as envisaged in the BEPS Action Plan with regard to intangible assets, risk and over-capitalisation.   A series of questions relating to all the options has been set out, and responses to these questions will be taken into account when considering the appropriateness and design of each option.

Following the deadlines for the submission of responses to the discussion drafts, public consultations are to be held 21 – 23 January, 17 and 25 February and 19 – 20 March 2015.


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