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Changing times: transfer pricing issues in the oil and gas industry

By Randell G. (Randy) Price and John M. Wells, national transfer pricing leaders – Deloitte oil and gas industry

On behalf of our Deloitte Touche Tohmatsu Limited tax colleagues who focus on transfer pricing issues within the oil and gas (O&G) industry, we are pleased to present this collection of papers on industry developments and issues.

The O&G industry's global transfer pricing landscape is in a state of change. From a macroeconomic perspective, oil prices have fallen by approximately $45/barrel over the last year, active drilling rig count is near a five-year low, thousands of industry jobs have been lost, and the capital budgets of E&P companies have scaled back significantly.

With that list as a challenging backdrop, the O&G industry (as well as the global tax community) was greeted with what may be considered the most comprehensive changes to the transfer pricing framework in nearly two decades as the G20 and the OECD issued proposed new transfer pricing guidelines under the base erosion and profit shifting (BEPS) initiative. The BEPS documentation guidance fundamentally changes transfer pricing considerations for the globally-reaching O&G community and ushers in a new paradigm regarding transparency. In addition, the BEPS Action Plan states that key changes may be needed in how companies approach the valuation of intangibles, price risk allocations, and acknowledge or respect intercompany agreements.

Our approach to this guide is to bring some order to this change. Therefore, we begin with a primer on transfer pricing challenges posed to the O&G industry by the BEPS transfer pricing deliverables. Next, we turn our attention to transfer pricing challenges given the current (and potentially protracted) economic downturn. Two articles focus on specific industries that are facing challenging environments due to commodity price deterioration: (i) transfer pricing issues in the contract drilling sector; and (ii) transfer pricing issues in the liquefied natural gas (LNG) space. The final industry article addresses the challenges and opportunities for the O&G industry regarding intellectual property migration. We have also included an overview of recent transfer pricing developments for Australia and the UK, because they appear to be at the forefront of BEPS-responsive initiatives.

More information on transfer pricing issues in specific countries and Deloitte Tax contacts locally are contained in Deloitte's Global Transfer Pricing Desktop Reference (www.deloitte.com/tax/strategymatrix). We hope you find our publication interesting and, more importantly, of practical use, and we invite you to contact our leading team of professionals if you have any questions.

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