OECD Discussion Draft on Hard-to-Value Intangibles | KPMG | CA
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OECD Discussion Draft on Hard-to-Value Intangibles

OECD Discussion Draft on Hard-to-Value Intangibles

The OECD released a discussion draft that lays out guidance on "hard-to-value intangibles".


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This OECD guidance will help tax jurisdictions that are implementing rules on how to treat hard-to-value-intangibles in the context of transfer pricing. The guidance is meant to tackle the information imbalance between taxpayers (who have extensive information) and the tax administrations (who have very little information, other than what the taxpayer may present), which can be problematic when tax administrations are evaluating the pricing of a transaction.

Under the guidance, tax administrations can use after-the-fact outcomes to determine whether a taxpayer may have used an inappropriate pricing arrangement involving the transfer of intangibles.

According to the OECD's discussion draft, an approach to pricing hard-to-value intangibles should follow these principals:

  • Tax administrations can consider after-the-fact outcomes as presumptive evidence about the appropriateness of the original pricing arrangements 
  • The tax administration should not evaluate a taxpayer's actual income or cash flows without considering what the probability of achieving that income or cash flow was at time that the hard-to-value-intangibles were transferred 
  • If a revised valuation shows that the intangible was transferred at an undervalued or overvalued amount compared to the arm's length price, the revised value of the transferred intangible may be assessed for tax, taking into account contingent payments and price adjustment clauses, irrespective of the payment profiles asserted by the taxpayer 
  • Tax administrations should apply audit practices to ensure that presumptive evidence based on after-the-fact outcomes are identified and acted upon as early as possible.

Public comments on the discussion draft are due by 30 June 2017.

One of the requirements under BEPS Actions 8-10 (Aligning transfer pricing outcomes with value creation) was that the OECD develop transfer pricing rules or special measures for transfers of hard-to-value intangibles, aimed at preventing base erosion and profit shifting by moving intangibles among group members.

Previously, many tax administrations felt that the current rules guiding the interpretation of the "arm's length" principle were inadequate and didn't properly support profit allocation within multinational enterprises. Under the BEPS project, there are new rules to clarify how transfer prices for inter-company transactions should be undertaken by associated enterprises.

Actions 8, 9, and 10 of the BEPS Action Plan specifically relate to a number of closely related topics. These include the development of rules to prevent BEPS by:

  • Moving intangibles among group members 
  • 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 and to require alignment of returns with value creation; and 
  • Engaging in transactions which would not, or would only very rarely, occur between third parties.

The final guidance takes the form of amendments to various chapters of the OECD Transfer Pricing Guidelines. The treatment of hard-to-value-intangibles is addressed in revised chapter VI of the Transfer Pricing Guidelines.

For more information, contact your KPMG adviser.

Information is current to May 30, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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