On 3 July 2018 the OECD published a discussion draft on the transfer pricing of financial transactions.
The discussion draft, published under the BEPS Action Plan, provides additional transfer pricing guidance on several types of financial transactions but also asks numerous questions of commentators. In its current form, our view is that a significant amount of uncertainty around how to practically demonstrate compliance with the arm’s length standard remains. This article highlights some of the key topics discussed and themes arising in the discussion draft.
Key topics that are discussed in the discussion draft include:
The discussion draft specifically notes that the guidance is not intended to prevent countries from implementing approaches to address capital structure and interest deductibility under domestic law. It is our view that the report is missing meaningful guidance when it comes to assessing the arm’s length quantum of debt. A significant portion of the discussion draft introduces the concept and characteristics of those financial arrangements noted above but in many areas it does not provide the detail required to guide taxpayers through to a clear conclusion. The final section, dealing with captive insurance, is highly negative and will have significant implications for most captives.
Key themes arising throughout the draft include:
The OECD has invited comments on the paper to be provided by 7 September 2018. In light of the content of the draft, we are expecting commentators to not only seek to address the questions raised but also encourage the OECD to go further in a number of areas in order to help them to publish meaningful guidance that genuinely helps taxpayers to navigate some of the challenges in this area.
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