OECD: Impressions about discussion draft, HTVI | KPMG Global
Share with your friends

OECD: Initial impressions about discussion draft, hard-to-value intangibles

OECD: Impressions about discussion draft, HTVI

The Organisation for Economic Co-operation and Development (OECD) last week released a discussion draft for implementation guidance on hard-to-value intangibles under the base erosion and profit shifting (BEPS) Action 8.


Related content

Read TaxNewsFlash (23 May 2017). The following provides initial impressions concerning the discussion draft [PDF 114 KB]. 


Action 8 of the OECD’s BEPS project calls for developing rules to prevent base erosion and profit shifting that arises through the movement of intangibles among multinational group members. To meet this goal, one of the items identified was to develop transfer pricing rules or special measures for hard-to-value intangibles (HTVI).  

The OECD released transfer pricing guidance on HTVI in October 2015 in a final report on BEPS Actions 8-10—Final Report on Actions 8-10: Aligning Transfer Pricing Outcomes with Value Creation. The guidance on HTVI is contained in Section D.4 of the Revised Chapter VI of the Transfer Pricing Guidelines included in the Actions 8-10 final report.

The Actions 8-10 final report defines HTVI as intangibles for which (1) no reliable comparables exist, and (2) at the time the transaction was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain, making it difficult to predict the level of ultimate success of the intangible at the time of the transfer.

The guidance notes that information asymmetry between taxpayers and tax administrations may be acute for HTVI, making it difficult for a tax administration to establish or verify the arm’s length pricing. Thus, for HTVI purposes, the tax administration can consider ex post outcomes as presumptive evidence about the appropriateness of the ex ante pricing arrangements (i.e., the “HTVI approach”). The HTVI approach will not apply if at least one of four exemptions provided in the guidance applies. 

Overview of the discussion draft

The discussion draft, released 23 May 2017:

  • Presents the principles that underlie the implementation of the HTVI approach
  • Includes three examples intending to clarify the implementation of the HTVI approach in different scenarios
  • Includes a final section noting the interaction between the HTVI approach and access to the mutual agreement procedure (MAP) under the applicable treaty

The OECD noted that that the proposals included in the discussion draft do not represent consensus views of the drafters. 

Implementation principles

The discussion draft presents the following principles as underpinning the application of the HTVI approach:

  • If the exemptions to the HTVI approach do not apply, tax administrations can consider ex post outcomes as presumptive evidence about the appropriateness of the ex ante pricing arrangements.
  • The ex post outcomes inform the determination of the valuation that would have been made at the time of the transaction; however, it would be incorrect to base the revised valuation on the actual income or cash flows without taking into account the probability of achieving such income or cash flows at the time of the transfer of the HTVI.
  • When a revised valuation shows that the intangible has been transferred below or above the arm's length price, the revised value of the transferred intangible may be structured using contingent payments and price adjustment clauses, irrespective of the payment profiles asserted by the taxpayer.
  • Tax administrations need to apply audit practices to determine that presumptive evidence based on ex post outcomes is identified and acted upon as early as possible.

Further, if an exemption to the HTVI provisions applies (meaning that ex post outcomes are not to be considered in evaluating the appropriateness of the ex ante arrangement), an adjustment may still be appropriate under another section of the OECD guidelines.


The discussion draft includes three examples aimed at illustrating the practical implementation of a transfer pricing adjustment arising from the application of the HTVI guidance. All three examples assume that the transferred intangible meets the criteria for HTVI, the exemptions to the use of the HTVI approach are not applicable unless specifically discussed, and a transfer pricing adjustment is warranted for the transaction. All three examples assume that the transferred intangible is valued using a discounted cash flow (or income) approach. 

  • Example 1 presents two scenarios. In the first scenario, it is assumed that none of the exemptions to the HTVI approach applies, and thus the tax administration is entitled to make an adjustment. The second scenario assumes that one of the exemptions to the application of the HTVI approach applies, and thus the tax authority is not entitled to make an adjustment under the HTVI approach, although it can still make adjustments under other principles of the OECD Transfer Pricing Guidelines. 
  • In Example 2, the HTVI approach is assumed to apply, and the tax authority is entitled to make an adjustment under the HTVI approach. This example shows the tax authority computing the adjustment implied by the application of the HTVI approach and not simply applying the adjustment to the lump-sum payment established by the taxpayer, but also modifying the form of payment to a contingent payment to account for the significant uncertainly in the intangible value. 
  • In Example 3, the taxpayer sets up a recurring royalty for the intangible. The HTVI approach is assumed to apply, and the tax authority is entitled to make an adjustment under the HTVI approach. The example notes that the amount of primary adjustment to be assessed and of the corresponding adjustment to be granted in open years will be determined in accordance with the domestic law of each country and the rules on statute of limitations applicable to those transactions. 

Mutual agreement procedure (MAP)

The discussion draft simply notes that it would be important to permit resolution of cases of double taxation arising through the application of the HTVI approach through access to the MAP under the applicable treaty.  

It further notes that the guidance in the discussion draft must be read in conjunction with the agreed framework on dispute resolution contained in the Final Report on Action 14, Making Dispute Resolution Mechanisms More Effective

Next steps

The OECD invites public comments on the discussion draft, which are to be submitted by 30 June 2017.    

KPMG observation

The discussion draft is short, is not a consensus draft, and was issued more than a year and a half after the final guidance on the transfer pricing aspects of HTVI was published. Further, it does not cover various aspects of implementation of the HTVI approach—for example, it does not provide guidance on how a taxpayer could demonstrate that a given development was unforeseeable, or how a tax authority would take into account the probability of achieving the ex post realized income at the time of the transfer of the HTVI in making an adjustment under the HTVI approach.  All these factors are a reflection of the challenges with providing guidance on implementing the HVTI approach. Nevertheless, given that the OECD is soliciting input on the discussion draft, respondents will have an opportunity to shape the future guidance.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal