“The OECD has identified the use, in transfer pricing matters and, in particular, in comparability analyses, of post-transaction and post-filing data, as a topic where there is insufficient common understanding,” said Caroline Silberztein, head of the transfer pricing unit at the OECD.
The issue of hindsight was raised during the Working Party 6 meeting on the transfer pricing aspects of intangibles, in Paris last week, and the questionnaire will contribute to a new project, going further than the scope of this one.
“Both the use of hindsight and the question of what the starting point, with regard to information asymmetry should be, should be included in the project,” said Ronald van den Brekel of Ernst & Young who also attended the meeting.
He suggested that more guidance should be developed on the use of hindsight, for example by developing guidance from a process perspective.
Silberztein, who chaired the meeting, acknowledged the importance of the topic and announced the working party will undertake a specific project on hindsight, which would go beyond the context of intangibles.
“In particular, it is not clear what the situations are where the use of such data would constitute hindsight, and what the situations are where it would be a way of dealing with valuation uncertainties at the time of the transaction in a manner that is consistent with the arm’s-length principle. The OECD intends to review this issue as part of its monitoring activities,” said Silberztein.
Paragraphs 2.84 and 3.73 of the transfer pricing guidelines say tax administrators should avoid using hindsight to adjust the pricing of taxpayers’ controlled transactions.
Hindsight becomes an issue because it is felt, by revenue authorities, that transfer prices should reflect what was known at the time a transaction was entered into.
Ernst & Young suggested the provision of partial safe harbours on certain types of transactions, the provision of increased deference to taxpayer approaches, if defined criteria or processes have been followed and the provision of more examples of where unforeseen results would be consistent with the arm's length standard.
The OECD has not set a specific time-frame for this project at this point.
