The Organisation for Economic Co-operation and Development (OECD) last week released a discussion draft related to the base erosion and profit shifting (BEPS) Action 10.
Read the BEPS Action 10 discussion draft on profit splits [PDF 1.6 MB] referred to below as the “2017 discussion draft.”
The 2017 discussion draft follows a 2016 discussion draft on profit splits [PDF 330 KB] and proposes revised guidance on the application of the transactional profit split method.
The 2017 discussion draft considers revisions to be included in Chapter II of the OECD Transfer Pricing Guidelines and is not intended to imply changes to the broader framework of accurately delineating the actual transaction discussed in revised Chapter I or evaluating intangibles discussed in revised Chapter VI.
The 2017 discussion draft considers several key issues related to the application of the transactional profit split method, addresses certain comments provided on the 2016 discussion draft, and poses some questions for public discussion.
Some of the key issues addressed by the 2017 discussion draft are:
The 2017 discussion draft includes significant revisions to the 2016 discussion draft. Some of the key revisions are discussed below:
The 2017 discussion draft includes three questions in the preamble on which the OECD is specifically requesting comments. These relate to:
The OECD invites public comments on the 2017 discussion draft, that are to be submitted by 15 September 2017.
The 2017 discussion draft has been significantly revised from the 2016 discussion draft. The 2016 discussion draft elicited numerous comments from the public, and it is clear that the 2017 discussion draft has tried to incorporate some of those comments. For instance, the discussion on parallel and sequential integration, which many commentators had questioned, is excluded from the 2017 discussion draft.
The 2017 discussion draft takes a more balanced view of the transactional profit split method—for instance, emphasizing the relative reliability of the selected method over other methods and including examples illustrating the selection of the transactional profit split method as the most appropriate method, as well as examples illustrating the rejection of the transactional profit split method as the most appropriate method. The 2017 discussion draft suggests that public comments have the potential to shape regulatory guidance. Given that the OECD is soliciting input on the discussion draft, respondents appear to have additional opportunity to shape the future guidance on profit splits.