The project began in 2010 and sought to look at the administrative aspects of transfer pricing and, particularly, to analyse the various simplification methods that different countries use.
All 33 countries that responded indicated that their national legislation requires compliance with the arm’s-length principle (ALP), the mainstay of the OECD’s transfer pricing guidelines.
The report found that 27 of the 33 respondent countries have transfer pricing simplification measures in place. Argentina, Chile, Czech Republic, Korea, Luxembourg and Switzerland do not.
“The main finding is that 27 out of 33 respondent countries have transfer pricing simplification measures in place, the vast majority of which are targeted to low value added services, small transactions and small and
This finding was largely expected by the OECD.
“This is not a surprise: as more sophisticated transfer pricing guidance and analysis become necessary to deal with more complex business transactions (business restructurings and transactions involving the use or transfer of intangibles for instance), many governments are willing to alleviate the compliance and enforcement burdens for simpler, less risky transactions,” said
Switzerland said: “they were simply deemed unnecessary”, while Argentina responded by saying: “the need for adoption of transfer pricing simplification measures was not evaluated”. The Czech Republic explained that in their national tax law there is no difference between taxpayers and therefore all are obliged to justify their transactions to the tax authority according to the ALP.
More than 70% of the simplification measures reviewed are aimed at small and medium-sized enterprises (SMEs) or small transactions. This makes sense given there are various national objectives to keep compliance costs in proportion to the size of a transaction.
Exemptions from documentation requirements were the dominant type of simplification measure used, with more than half of all measures reviewed falling into this category. This figure rises to 66% when focusing on simplification measures for SMEs and small transactions only.
“It is also not a surprise that more than half of the simplification measures in place relate to alleviated documentation requirements,” said
Other types of simplification measures analysed were classified according to pricing (simplified transfer pricing method and safe harbour arm’s-length range); advance pricing arrangements (simplified APA procedures and reduced APA charges), transfer pricing rules (exemption from rules and exemption from adjustment) and penalties (exemption from penalty and alleviated penalties).
The number of taxpayers benefitting from simplification measures is hard to report accurately, but the country responses indicate that these practices are usually welcomed because they reduce the burden of compliance.
“The simplification measure has reached its objective of diminishing the compliance burden on the smallest
The work of the OECD has greatly contributed to the simplification of transfer pricing issues, with simplification measures being introduced almost every year since the OECD’s 1995 transfer pricing guidelines.
The findings of the report will be used to inform the OECD’s future work in this area; including a review of the guidelines on safe harbours contained in the organisation’s transfer pricing guidelines.
“The OECD will use the findings from this analysis as well as the comments which will be received from the public by the end of this month on the administrative aspects of transfer pricing to further explore possible ways to improve the effectiveness of the administration of transfer pricing,” said
The invitation to submit comments on these aspects is available here.
“The goal is to optimise the use of taxpayers’ and tax administrations’ resources while improving the compliance and enforcement climate. In particular, the OECD is about to start a review of the existing guidance on safe harbours in chapter IV of the transfer pricing guidelines,” she added.
