OECD: Initial impressions, BEPS Action 8 (hard-to-value intangibles)

OECD: BEPS Action 8 (hard-to-value intangibles)

The Organisation for Economic Co-operation and Development (OECD) yesterday released a discussion draft concerning work in relation to Action 8 under the base erosion and profit shifting (BEPS) project concerning hard-to-value intangibles. The following discussion provides initial impressions of the BEPS Action 8 discussion draft on hard-to-value intangibles.


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Read the BEPS Action 8 discussion draft [PDF 62 KB]

The following discussion provides initial impressions of the BEPS Action 8 discussion draft on hard-to-value intangibles.


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 by the BEPS project is to develop transfer pricing rules or special measures for hard-to-value intangibles.

The OECD released a report in September 2014, Guidance on Transfer Pricing Aspects of Intangibles, under BEPS Action 8 that retained in Section D.3 language from the 2010 version of the OECD’s Transfer Pricing Guidelines relating to hard-to-value intangibles.

The BEPS Action 8 discussion draft released 4 June 2015 proposes revisions to the existing guidance under Section D.3.

Overview of BEPS Action 8 discussion draft

The discussion draft defines “hard-to-value intangibles” as those intangibles for which, at the time of their transfer between associated enterprises:

  • No sufficiently reliable comparables exist; and
  • There is a lack of reliable projections of future benefits, or the assumptions used in valuing the intangible are highly uncertain.

The discussion draft argues that it is difficult for a tax authority to evaluate the reliability of information used by a taxpayer to price a hard-to-value intangible given the information asymmetry between tax authorities and taxpayers. Thus, a tax authority may consider ex post evidence about actual financial outcomes to gauge the reasonableness of the ex ante price determined by the taxpayer.

However, the discussion draft notes that ex post evidence is only to be used in situations when the difference between ex ante projections and ex post outcomes is “significant,” and when such a difference is due to events that were foreseeable at the time of the transaction.

Thus, ex post evidence is not to be used when the taxpayer:

  • Provides full details of its ex ante projections used at the time of the transaction, including its accounting for risks and consideration of reasonably foreseeable events; and
  • Provides satisfactory evidence that any significant difference between its ex ante projections and ex post outcomes is due to events that could not have been reasonably foreseen at the time of the transaction

If the use of ex post evidence is found to be appropriate, then a tax authority could use it to inform the determination of arm’s length pricing arrangements. This could take the form of contingent pricing arrangements, short-term agreements with price adjustment clauses, or arrangements involving periodic milestone payments that would have been made by independent parties at the time of the transaction.

Specific requests for comments

In addition to comments on the proposed guidance, the discussion draft specifically requests comments on the following specific points:

  • Mechanisms for providing greater certainty for taxpayers regarding their hard-to-value intangibles pricing
  • Additional situations when ex post evidence is not to not be used
  • Whether “significant” differences between ex ante and ex post outcomes need to be defined
  • Further matters worth considering

Next steps

The OECD has invited public comments on the discussion draft, to be submitted by 18 June 2015. A public consultation on the discussion draft and other matters will be held in Paris on 6-7 July 2015.

KPMG observation

The fact that the OECD released guidance on hard-to-value intangibles only in interim form in September 2014 and then followed up with the discussion draft more than half a year later, with several substantive points identified for discussion, is a reflection of the inherent challenges in providing guidance on hard-to-value intangibles.

The OECD is running up against its deadline of finalizing all deliverables under its BEPS project by the end of 2015. Also, while there is a short window of two weeks to provide comments on the discussion draft, tax professionals have observed that the OECD is specifically soliciting input on several key issues and that this appears to indicate that there may still be a real opportunity to shape the future guidance.

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