Deloitte: OECD Releases Final BEPS Reports

Key Transfer Pricing Concepts in Final Reports

The final transfer pricing reports provide guidance on a multitude of transfer pricing topics. Some of the
salient features include the following:

Global transfer pricing documentation and country-by-country reporting

As expected, the OECD did not introduce any new guidance in the global documentation and CbC final
report, which is simply a compilation of previously released deliverables.

Role of contracts

The contractual arrangements between the parties is the starting place for the proper understanding of
a transaction. However, written contracts are unlikely to provide all the information necessary to
perform a transfer pricing analysis. Therefore, the parties’ actual conduct should be used to clarify or
supplement the terms of the contract, or replace the contract if the contract is not supported by the
conduct of the parties.


To contractually assume risk, a party must exercise control over the risk and have the financial
capacity to assume the risk.

Although there is no bright line test to determine control over risk, the factors considered include:
(1) performance of the decision to take risks; (2) the performance of responding to risks associated
with the business opportunity; and (3) performance of risk mitigation activities.
The guidance permits day-to-day risk mitigation activity to be outsourced as long as the party
outsourcing the risk mitigation activity exercises control over the party doing the day-to-day risk
mitigating activity.
The guidance provides a six-step process to determine the entity incurring risk.


The final report retains the 2014 guidance on categories of intangibles, transfer pricing methods, and
important functions related to the development, enhancement, maintenance, protection, and
exploitation of intangibles (the DEMPE functions).
To be entitled to intangible returns associated with the DEMPE functions, the final report incorporates
the control and funding requirements from the deliverable on risk, discussed above. The guidance
states that the entity entitled to the profit or loss between projected and actual outcomes will be the
entity exercising the control functions over the risks that caused the difference.

Funding and cash boxes

An entity that does not control the financial risks associated with its funding will be entitled only to a
risk-free return. An entity that does control the financial risks associated with the DEMPE functions will
be entitled to a risk-adjusted return.


If a transaction lacks the commercial rationality of an arrangement that would have been agreed
between unrelated parties, the guidance permits the non-recognition of the transaction. The fact that a
transaction is not observed between unrelated parties is not sufficient grounds for not recognizing the

Hard-to-value intangibles

If the taxpayer cannot demonstrate that its pricing is based on a thorough analysis, the ex post
outcome will be used as a presumptive evidence of the appropriateness of ex ante pricing
The OECD includes several exemptions to this rule based on unforeseeable events and adopts a fiveyear
look-back rule with a 20 percent tolerance. They also allow taxpayers to bypass the provisions of
this section by disclosing the underlying ex ante and ex post data and explaining why the variance was
not anticipated.

Cost contribution arrangements

The final report updates the CCA guidance to conform to the changes on contracts, risk, and
intangibles discussed above. The guidance retains the requirement that ongoing contributions be
valued at value rather cost unless the parties value the opportunity cost of the upfront commitment to
contribute resources to the CCA.

Low-value-adding intragroup services

To qualify for the safe harbor on low-value-adding intragroup services, taxpayers must document the
cost pool and choose appropriate allocation keys.

If the level of low-value-adding intragroup service fees exceeds a threshold determined by an individual
country, tax administrations are able to require a full functional analysis and comparability analysis
including the application of the benefits test to specific service charges.

Dispute resolution

Twenty nations—Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan,
Luxembourg, the Netherlands, New Zealand, Norway, Poland, Slovenia, Spain, Sweden, Switzerland,
the U.K. and the U.S.—have committed to provide for mandatory binding MAP arbitration in their
bilateral tax treaties as a mechanism to guarantee that treaty-related disputes will be resolved within a
specified time frame. Other countries have agreed to minimum standards and a peer review
monitoring system.

Profit splits

Final guidance on profit splits has been postponed until 2016 and 2017.

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